David R. Henderson  

Trade Deficit or Stuff Surplus?

Cents and Sensibility... Real and nominal shocks...


Notice that if imports exceed exports, as they have done for decades in the United States, then, on net, more dollars leave the United States by Americans' purchases of imports than come in by Americans' sales of exports. Such a situation is termed a current-account deficit, or "trade deficit." But the terminology could just as well be formulated the other way around, in a framework of husbanding stuff. Then, under the same condition of imports exceeding exports, the focus is on the stuff that, on net, is flowing into the United States. Now we view the exact same world but see a surplus. Instead of looking at matters as the conventional language does, we might call this new view the in-kind account. What in the conventional view is a "trade deficit" is in the in-kind view an "in-kind surplus."

This is a key paragraph from this month's Econlib Feature Article "The 'Trade Deficit': Defective Language, Deficient Thinking" by Daniel B. Klein and Donald J. Boudreaux.

And one of their concluding paragraphs:

In our view, rather than elevating money over stuff or elevating stuff over money, economists ought to speak in a way that ascribes a presumptive mutual gainfulness and rightness to whatever voluntary decisions people make regarding all that is their own--that is, their money-and-stuff. That means eschewing any form of the "deficit"/"surplus" talk.

I recommend the whole article--it's not long.

Comments and Sharing

CATEGORIES: International Trade

COMMENTS (2 to date)

One in-your-face and perhaps easy way to educate would be to reverse the term immediately. When someone refers to the trade "deficit" as though everybody must know it is bad, change the term right there. Say "That's a surplus you are talking about, and I think it's good." Don't let the confusion stand unchallenged.

We get Toyotas and Hondas! They only get dollars.

BC writes:

This is the rejoinder to Larry Summers's errors, which DH discussed earlier: [http://econlog.econlib.org/archives/2017/05/larry_summers_t.html]. In that article, Summers decried US imports of Chinese poultry, presumably because we were giving up money for the poultry. Then, Summers *also* complained about US exports of natural gas to China because we were giving up stuff.

In trade, of course, we will always have to give up money or stuff in exchange for stuff or money. That's what makes it a trade! Klein and Boudreaux are correct. The key question in trade is not whether one is trading away money or stuff. It's whether or not the trade is voluntary.

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