International Trade Imbalances
March 8, 2017
From: SW
Sent: Wednesday, March 01, 2017 1:28 AM
To: Walter Block
Subject: RE: May I ask a Question from Across the Pacific?
Thanks, my question is this. A standard response to the notion that imports are negative is to point out that if an American buys a good from Australia, the Australian manufacturer will only be able to use those USD in the purchase of American goods. Ergo it’s fine for America to import from Australia because the USD will be used to increase exports to Australia. However in a system of free trade, with gold standard, without legal tender laws and all that. If an American purchases an Australian good for gold, the Australian manufacturer could use that gold for anything (perhaps import from the UK), meaning importing from Aus will not necessarily engender increased exports. Am I incorrect in this conclusion? And I suppose there are the follow up questions of, Is there a way out of this deficit? What are some good arguments to show that such a deficit is not detrimental? Thank you for your time.
Dear SW: I have two responses. First, the exporter could use the money in India, which would then go to Brazil, and, eventually may end up on the US or Australia. Second, it really doesn’t matter. Trade “imbalances” are not a problem in any case. For example, I have a horrid trade deficit with McDonalds and Wal-Mart. I spend quite a bit of money on them per year, and they don’t buy anything at all from me. On the other hand, I have a gigantic surplus with my employer, Loyola University New Orleans (hint: come study with me and my free enterprise colleagues). They pay me a six figure salary, and I purchase from them little or nothing. Are these problems in need of rectifying? Of course not. Ditto for trade deficits or surpluses between people in different countries.
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