Don Boudreaux has written one of those rare letters that I don't quickly agree with. He writes:
Discussing expanded American trade with the Chinese, President Obama told a business group in Honolulu "those are potential customers for us in the future" ("Obama Sees an Opening on China Trade," Nov. 13).
Yep. And a bigger pool of customers is indeed good because in many industries it encourages larger-scale investments and R&D projects that allow firms to produce and sell at lower per-unit costs than are possible with only a smaller pool of customers.
But with his comment Mr. Obama singled-out the least-important benefit of American trade with China. Had he instead singled-out the most-important benefit he would have said instead about the Chinese people: "those are potential producuers for us in the future."
If all Don said was that Obama left out a huge gain from international trade--the gain to consumers--I would have agreed with him instantly. In fact, I wrote about that in Fortune magazine in 2000. But that's not all he said.
We generally measure gains from trade by adding the producer surplus--the area between the supply curve and the price--to the consumer surplus--the area between the demand curve and the price.
For Don's statement--that the gains to U.S. exporters are substantially less than the gains to U.S. importers--to be true, demand curves for imports would have to be consistently less elastic than supply curves of exports. Are they? Maybe, but I'm not seeing it.