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OPINION | Trade 101

IN his classic 1933 work, “The Theory of International Trade With Its Application to Commercial Policy,” Gottfried Haberler wrote:

“One speaks, for short, of ‘British’ exports’ and ‘Germany’s balance of trade.’ But to analyze these conceptions one must split them up into their component parts, i.e., into the actions of individuals.”


Trade is not carried out by countries as such. Or by regions. Or by societies. Or by governments (except when they buy and sell, in the same way that private companies buy and sell, each to provision itself as an organization). Trade is carried out only by individuals, each with his or her own distinct preferences (including risk-tolerances) as well as unique knowledge of time, place, and circumstances.

In any society that can reasonably be described as free, the result of the countless ongoing decisions by individuals to trade, and of just how to do so in each instance, is a vastly complex yet unplanned (and unplannable) pattern of “outcomes.” This complex pattern can be called, for linguistic convenience, say, “the American economy” or (more accurately) “the global economy.”

But it is not really an economy. The “it” as such — that which we call “the American economy” — serves no purpose in the sense of “it” being aimed to achieve some overall goal toward which each of its component actors is meant, or intends, to promote.

Americans do not work — do not produce, invest, consume, or “allocate resources” — in order to maximize American GDP, to “win” some always-imaginary game of global economic competition against some other country or countries, or to achieve any other aggregate or national goal. And so to attempt to evaluate the American economy according to any such criterion is a fundamental error.

To commit this error is to commit the same error that someone would fall into who, upon observing from a helicopter the flow of traffic along the I-95 corridor near Philadelphia, speaks of “the” purpose of the observed traffic pattern. Each driver has a purpose. And an observer from on high marvels as the orderliness of the pattern’s flow. Further, this observer speaks of “the traffic,” as if it is a thing unto itself. But “the” traffic — being merely a name for a complex and unplanned order that is the result of countess individual decisions — has no purpose. It is not an entity that can possibly possess a purpose.

The “traffic” of human commerce — the human “economy” — has no purpose. “The” [fill-in-this-blank with “American,” “Dutch,” “Chinese,” “global,” you name it] economy is merely a name that we give to a complex, emergent order the operation of which increases the prospects of each purposeful individual better achieving his or her individual goals. But “it” has no goals.

Trump’s long-term goal is not global free trade

It is absurd to assert that President Donald Trump’s long-term goal is a world of freer trade.

Trump has pontificated on trade for decades, and every word out of his mouth clearly reveals a man who knows nothing about the economics of trade and who is as clichéd an economic nationalist as can be imagined.

Behold this line from a 1990 interview he did in Playboy: “The Japanese double-sc*ew the U.S., a real trick: First they take all our money with their consumer goods, then they put it back in buying all of Manhattan. So either way, we lose.”

Let’s examine this unalloyed gem of economic witlessness.

Overlooking Trump’s outrageous exaggerations, such as his claim that the Japanese buy up “all” of Manhattan, we start by stating an obvious truth: the voluntary purchase of a good is not a transaction in which the buyer is “sc*ewed” or has his or her money “taken.” Instead, the buyer’s money is voluntarily spent. While every person of good sense sees a foreign seller who makes attractive offers to domestic buyers as someone who improves the well-being of each buyer who accepts the offer, Trump sees this seller as a con artist or thief.

And so Trump ignores the value to Americans of the imports we purchase. In typical mercantilist fashion, he believes that the ultimate purpose of trade is to send out as many exports as possible in exchange for as much money as possible — money that in Trump’s ideal world is never spent on imports. His view on this matter is even more bizarre than that of ordinary mercantilists. For Trump, imports are not merely costs that we endure in order to export, they are actual losses. (Although it goes without saying, I’ll say it nevertheless: Trump does not understand that imports are benefits and that exports are costs.)

Furthermore, by describing the money spent on imports as “our money,” Trump reveals his belief that money earned by each American does not belong to that individual but, instead, to the collective.

Also in the fashion of the typical mercantilist, the presumption is that the nation is akin to a gigantic household whose members all share in and collectively own its money. And just as Dad justly superintends little Emma’s and Bobby’s spending to ensure that they don’t dissipate the family’s wealth, Uncle Sam must superintend his subjects’ spending in order to ensure that we don’t dissipate the nation’s wealth.

Don Boudreaux is a professor of economics at George Mason University.