In an otherwise excellent critique of Donald Trump’s trade policy, Mercatus economist Veronique de Rugy writes:
Worst of all, the deal would actually reinforce these Chinese behaviors. For instance, the deal in question would require that China use its state-owned enterprises to buy $40 billion to $50 billion worth of American agricultural products annually—instead of the roughly $20 billion it bought previously. That’s no victory. That’s a concession China already agreed to more than two years ago. And that’s pursuing the very sort of top-down, government-directed policy Trump claimed he wanted to change in the first place.
Unfortunately, thanks to a profound misunderstanding about the value of exports, the president may receive some praise for getting China to commit to buying more U.S. soybeans. While it may be very counter-intuitive to most people, economists understand that exports are valuable goods that we give up in exchange for imports; exports themselves are costs, rather than benefits.
Think about it this way: When you go to work in the morning, you export your services to your boss in exchange for wages, which, in this illustration, are an import. Even if you love working and derive value from it, for the most part you export your work in exchange for your wages and the goods and services that you can then buy with them. Imports, and the consumption they allow, are the goal of trade—not exports. As George Mason University’s Donald Boudreaux notes, “What is true at the level of the household is here true at the level of the national economy: the goods and services that Americans export to foreigners are the costs that we willingly incur in order to be able to import into our country the goods and services that we receive from foreigners in exchange.”
In this section, she starts out well, pointing out that it’s kind of weird for Mr. Anti-Socialist (my words, not Vero’s) Donald Trump to congratulate a government that moved away from destructive central planning of the economy for engaging in more central planning.
So that’s not my criticism. My criticism comes in the next two paragraphs.
Vero writes that exports are costs. That’s true. But then she writes that we exchange exports in return for imports. Not necessarily. What we know is true is that exporters typically exchange exports for money. They then use this money to buy other things–domestic goods and services or imported goods and services–or to invest.
Notice that Vero writes:
When you go to work in the morning, you export your services to your boss in exchange for wages, which, in this illustration, are an import.
That’s stretching it. I don’t think money is an import.
She then writes:
Even if you love working and derive value from it, for the most part you export your work in exchange for your wages and the goods and services that you can then buy with them.
OK. But wouldn’t it make sense for you to celebrate the fact that you got paid for what you love doing? When people export things, they get paid. So it’s not at all strange to celebrate American producers getting paid for things they produce. They aren’t giving the exports away; they’re selling them. Her analogy with individuals is apt. Just as exporters get paid for their exports, workers get paid for their work. So go back to the individual. Imagine Vero gets a lucrative contract for some free-lance work and when she receives her first big payment, she celebrates. Would it make sense to say, “Oh, Veronique, don’t celebrate. You had to work for that money. You should celebrate only when you buy things with the money, not when you get paid.”
HT2 Donald Boudreaux.
READER COMMENTS
Josh
Oct 17 2019 at 4:26pm
After exporting, we’ll have fewer soybeans in the US and more green pieces of paper. But if all we really want is more green pieces of paper in the US, we can just print them for far less than the resources it took to make those soybeans. Then we could give all those extra soybeans to the people who go hungry in this country every day.
If we instead export the soybeans rather than printing more money and keeping them, that leaves us with the same amount of green paper in the US. It also leaves us with more hungry Americans and fewer hungry Chinese. If what you’re saying is correct then it seems weird for the US to prefer the policy of exporting soybeans.
The reason we prefer exports as a way to increase the number of green pieces of paper inside the US is exactly what VdR says – to get imports back. (Printing money doesn’t make us better off precisely because it devalues our currency relative to other nations, which lets us buy fewer things from them).
The reason green pieces of paper aren’t valuable to the US while they are to a household, then is because the US can print them while a household can’t. The analogy for a household would be if I worked and my boss paid me in JoshBucks, my own private currency that I could also print on my home printer. Then it’s far more clear that the value of work isn’t in the JoshBucks but in how much stuff a JoshBuck buys from other households. The same holds for the US as a whole as pertains to dollars. As a nation, the value of our dollars is what we can buy from other nations.
David Henderson
Oct 17 2019 at 6:44pm
Dollars would be worth a lot even if we imported zero.
Don Boudreaux
Oct 18 2019 at 6:59am
David: I believe that the point Vero is here trying to make is that exporting – or, more generally, working to produce goods or services for sale to others – is a means; it’s not the end. The end is what is imported – or, more generally, what is ultimately wanted and received in exchange for exports (or, more generally, work effort).
Because means used to achieve valuable ends are themselves valuable, obviously those who land good jobs – or who sell lots of exports – celebrate. But what is ultimately celebrated isn’t the opportunity to toil (no matter how pleasurable such toil might be as a means of earning income) or the opportunity to export. What is celebrated is the opportunity to increase one’s and one’s household’s consumption either during the current period or in the future.
This point, of course, cannot be too often repeated given the stubborn persistence of the mistaken belief that the ultimate value of international trade is in the amount that citizens of the home country export while imports are a cost – a “concession” as they are often called – that we must incur in order to export.
David Henderson
Oct 18 2019 at 6:09pm
Imports are a benefit. We agree on that. What we pay for them is the cost. And the cost is below the benefit or else we wouldn’t buy imports.
Exports are a cost. We agree on that. Exporters are paid for what they export. The cost is less than the benefit, or else they wouldn’t export.
There’s a symmetry here.
Don Boudreaux
Oct 18 2019 at 7:22am
David:
One other point: Vero is correct to write that we export only to import.
It’s true, of course, that many of the particular individuals who export often use their export earnings (the immediate form of which is indeed money) to buy domestically produced goods and services. It’s true also that some of these export earnings are invested, either domestically or abroad. But these truths neither nullify nor qualify the claim that we export only to import.
If I lecture in France and earn in exchange 500 euros, I might convert these all in to U.S. dollars and spend these dollars all in the U.S. But the only reason anyone gave to me 500 euros worth of spending power in the form of U.S. dollars is because that person – or someone with whom he or she does business – wants to spend or invest those 500 euros in the eurozone. The fact that it’s not me personally, the American exporter, who imports from the eurozone is irrelevant.
If the 500 euros are invested in the eurozone rather than spent to purchase imports from the eurozone, this transaction means only that the person using those 500 euros in this manner wishes to buy eurozone-produced outputs in the future rather than in the current period. Investments that are believed to have no prospect of increasing the investors’ ability to consume in the future are investments that never happen.
Finally, also of no economic relevance is the particular form of the monetary transactions. If I’m paid for my lecture in France in U.S. dollars rather than in euros, we must ask how my French host obtained those dollars. He or she did so by exporting to America or, more likely, by exchanging euros for dollars with a fellow European who exported something to America. That is, in the past, some American imported something from the eurozone.
We do indeed export only to import.
Tom DeMeo
Oct 19 2019 at 2:04pm
I don’t think we export only to import. Rather, money is fungible, currencies can be exchanged, and we are engaging in buying and selling and no one cares about the boundaries. An export is just another sales transaction. An import is just another purchase option.
The U.S. is a reserve currency. We’ve been importing more than we’ve been exporting for decades. The world wants to use our dollars. We can buy more than we sell for over a generation and it still works out fine for everyone.
John Arthur
Oct 18 2019 at 4:50pm
Maybe he wants China to go back to central planning and grow slower lol
David Henderson
Oct 18 2019 at 6:06pm
For those still following this debate, see my June 4, 2019 post, “Don Boudreaux’s Export Error,” particularly the addendum where I point out that Don had to stretch to claim that we always ultimately want imports. He stretched by arguing that the services of a condo he buys in Shanghai are an import. Notice also that he at least felt the need to put the word “import” in quotation marks. In standard accounting, the condo in Shanghai is in fact a U.S. investment in China.
AJ
Oct 19 2019 at 8:28am
You can celebrate the fact that you were paid for doing what you love doing while also recognizing the fact that you are still exporting your work in exchange for wages and the goods and services you can buy, so I don’t understand what you’re trying to get at in your second criticism, but it seems a little too over-exacting.
David Henderson
Oct 19 2019 at 11:42am
What I’m getting at is Vero’s statement that is critical of celebrating an increase in exports.
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