The cost of exports

Presidential candidates rarely agree with each other during the months leading up to an election, but in this case, both Donald TrumpDonald John TrumpMichelle Obama says not always easy to live up to "we go high" Georgia certifies elections results in bitterly fought governor's race Trump defends border deployment amid fresh scrutiny MORE and Hillary ClintonHillary Diane Rodham ClintonDems wonder if Sherrod Brown could be their magic man Pipeline paralysis: The left’s latest fossil fuel obstruction tactic Mueller could turn easy Trump answers into difficult situation MORE proposed plans to increase jobs by increasing exports, with Mr. Trump seeming especially keen on the idea of doing anything and everything necessary to increase U.S. exports.

There is a major flaw underlying this proposal; exports are costs to an economy, not benefits.

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For example, let’s suppose that you grow corn and that your neighbor grows wheat.  In order for you to get some of your neighbor’s wheat, you will have to give them some of your corn.  In other words, your farm will have to export corn so that your farm can import wheat.  In this context, we readily understand that the corn given up isn’t a benefit from the exchange, but is instead the cost of the wheat.  The same is true when we talk about trade between countries. When we export goods or services to other countries, we receive imports in return. Exports are the cost and imports are the benefit.

If Mr. Trump and Secretary Clinton are going to continue parading such economic ignorance as knowledge, I encourage them to voluntarily overpay at the grocery store.  If what you give up to get something is truly a benefit, then doing so would surely be a path towards making their households even wealthier than they already are.

When people say that they want to increase exports, they usually mean that they want to increase production. This is a laudable goal and one that I personally share.  Increasing production is a truly wonderful thing and has helped lift millions of people, Americans and non-Americans alike, out of dire poverty. 

But we must be careful in our thinking and realize that, like exports, production in and of itself is not a benefit – it’s the consumption that production enables that is beneficial. If we want to enable more consumption, we need to find ways to increase productivity. An easy way to make consumption more affordable is to reduce trade barriers to international specialization and exchange, not increase them.

The only reason why people purchase imports is because it’s cheaper to buy them abroad than it is to buy them domestically. But, one of the factors in the price of a good purchased internationally is currency exchange.

When Americans purchase a foreign good, rather than a domestically made good, they do so in U.S. dollars. Foreign companies can only do two things with that U.S. currency. They can either purchase U.S. goods or invest it back into the U.S. economy, thereby increasing productivity and creating jobs, or exchange the currency by giving it to someone else who wants to purchase U.S. goods or invest in the U.S. economy. Thus, when Americans purchase foreign goods, it lowers the cost of purchasing U.S. dollars, making it cheaper for foreigners to purchase American goods or invest in American companies.

In other words, whether Americans purchase American or foreign, it ends up creating jobs and prosperity here in America. Importantly, allowing free trade enables countries to specialize in producing the goods they have a natural advantage in producing, making us all better off.

Trade, whether it is domestic or international, is the path to prosperity. But this is no different than suggesting that it’s cheaper for people in Michigan to buy oranges from Florida than to grow them themselves. If Michigan were to ban importing oranges from Florida, the people of Michigan would be poorer, not richer. The same is true if we change the example to buying shoes, textiles, and electronics from China.  The United States becomes poorer if we restrict imports, not wealthier.

Dr. David J. Hebert is an assistant professor of economics in the Johnson Center for Political Economy. Follow him on Twitter: @Dave_Hebert The views and opinions expressed are those of the author and do not imply endorsement by Troy University.


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