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Keep the Focus on Net Exports
Jesse Richman, 1/19/2017

The favorite line or political strategy for those who favor trade deals that end up weakening the US economically is that the deal will increase US exports.  President Obama bought this line.  Many Republicans in Congress have too.  The problem is that a focus on exports alone can be deeply misleading. 

To think about why, let's start with one of the jokes my father tells periodically about why he quit vegetable and sheep farming in favor of other pursuits.

The hardware store owner sees a man come in to the store one week.  He buys twenty pitchforks for $20 each. 

The next week the same man comes back, and buys twelve pitch forks for the same price.

The next week the same man purchases another eight pitchforks. 

Finally the shopkeeper cannot suppress his curiosity.  "Why are you buying all of these pitchforks?  What are you doing with them?"

"Well," said the man, "I buy them from you for $20, and then I resell them for $15."

"But you lose at least five dollars for every fork you sell!"

"Yup," said the man, "But it beats farming!"

Exports are a good thing.  Exports create jobs for those who work to produce the exports.  And they provide countries with the means to purchase imports.  

But just as selling pitchforks for less than one paid for them is a recipe for losses and debt, so too is making a deal that raises exports while raising imports much more.  The jobs displaced in the import-competing sectors will not be offset by the jobs created by the much smaller gains in the export-competing sector. 

Thus, when politicians speak of exports alone without also discussing imports, they ought to be taken to account.  How will their proposed policies influence the overall picture of US trade?  

Here are some other metrics to keep in mind.

Have policies that contributed to a decline in US share of global manufacturing value added from more than 25 percent in 2000 to 17 percent in 2014 been beneficial for US workers or for the strength of the US economy?  Is the decline in US global export market share by more than 30 percent since 2000 been beneficial for US workers or the strength of the US economy?  Has the decline in US manufacturing employment by about  two million and the rise of China's urban manufacturing employment by about 39 million over the years from 2003 to 2014  been good for US workers or the strength of the US economy?  From 2008 to 2015 US exports of goods (in constant 2009 dollars) increased by 214 billion.  But US imports of goods increased by 296 billion dollars.  Progress?  Maybe it "beats farming."  Maybe not. 

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

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  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]