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Quotation of the day on the mercantilist-in-chief’s backward, upside-down ‘theory’ of international trade….. – Publications – AEI

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AEI Quotation of the day on the mercantilist-in-chief’s backward, upside-down ‘theory’ of international trade….. …. is from Harvard economist and American Enterprise Institute visiting scholar Robert Barro writing in the Wall Street Journal (“Trump and China Share a Bad Idea on Trade” with the subtitle “Imports are things we want, and we pay for them with exports. Isn’t getting more for less a good thing?”), emphasis added: The Trump theory of international trade seems straightforward: Selling stuff to foreigners is good, and buying stuff from foreigners is bad. It’s a form of mercantilism. Exports are attractive because they represent domestic production and American jobs. Imports are undesirable because that production and employment otherwise could have happened at home. Simple economic

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AEI
Quotation of the day on the mercantilist-in-chief’s backward, upside-down ‘theory’ of international trade…..

…. is from Harvard economist and American Enterprise Institute visiting scholar Robert Barro writing in the Wall Street Journal (“Trump and China Share a Bad Idea on Trade” with the subtitle “Imports are things we want, and we pay for them with exports. Isn’t getting more for less a good thing?”), emphasis added:

The Trump theory of international trade seems straightforward: Selling stuff to foreigners is good, and buying stuff from foreigners is bad. It’s a form of mercantilism. Exports are attractive because they represent domestic production and American jobs. Imports are undesirable because that production and employment otherwise could have happened at home.

Simple economic reasoning, however, suggests that this logic is backward. Imports are things we want, whether consumer goods, raw materials or intermediate goods. Exports are the price we have to pay to get the imports. It would be great, in fact, if we could get more imports without having to pay for them through added exports.

Economists typically favor free trade, which has a lot to recommend it from a global perspective. As my favorite economist, David Ricardo, argued in the early 1800s, free trade ensures that production takes place in its most efficient location, as governed by principles of comparative advantage. That’s why the U.S. imports bananas and exports soybeans and high-tech products.

Nevertheless, departures from free trade can sometimes be rewarding for a single country. For example, if the Chinese want to subsidize particular goods, Americans can benefit by buying them at artificially low prices. In the extreme case of China giving goods away free, it takes a lot of imagination to construct a model in which this “dumping” would be bad for the U.S. overall (though it might harm some American producers).

MP: I’ve argued many times before that in an ideal world for Americans, foreigners would use their labor, materials, natural resources, and capital to produce goods and send those goods for free to Americans as a generous gift of foreign aid. The most likely way for that outcome to happen is if foreign governments (i.e., foreign citizens/taxpayers) subsidize the production of the goods that they then send to Americans for free. As Professor Barro points out, it would be very hard to imagine or argue that such subsidized “dumping” of free (or below-cost) goods (i.e., generous foreign aid) would somehow impoverish Americans. To the contrary, we should welcome as much of that form of generous foreign aid as countries like China are willing to provide us in the form of free goods or goods below the cost of production. But in the upside-down, backward world of Trumponomics, the protectionist-in-chief seems intent on forcing trade partners to stop giving us such great deals on cheap imports, and instead seems to prefer that countries like China charge higher, not lower, prices to Americans? Not too smart for someone who is supposed to be “Mr. Art of the Deal” and yet insists that paying higher prices would be a better deal for us and a way to ‘Make America Great Again”?

HT: Don Boudreaux

Quotation of the day on the mercantilist-in-chief’s backward, upside-down ‘theory’ of international trade…..
Mark Perry

Mark Perry
Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

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