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What About a Travel Ban to Reduce the Trade Deficit?

Priors and the Death Penalty... Functional capitalism...

by Pierre Lemieux

Countries are collections of individuals and trade no more than they eat, consume drugs, or travel. Only individuals do that.

selfies.jpg Besides the failure to understand the straight economic arguments for free trade, a methodological error often seems to underlie protectionist arguments. The error is to assume that "countries" trade.

For example, consider what President Donald Trump said in defending his recent tariffs ("Trump Defends Steel and Aluminum Tariffs Threat with Attack on EU," Financial Times, March 2, 2018):

"The European Union has been particularly tough on the United States," Mr Trump said. "They make it almost impossible for the United States to do business with them. And yet they send their cars and everything else ..."
It looks as if "the European Union" and "the United States" are thinking and acting like two individuals who trade. The rhetorical plural ("them," "they") is not enough to dispel this impression, especially since the same impression is conveyed by countless other similar statements. The recent 2018 Trade Policy Agenda of the President makes such statements as:
Countries that are committed to market-based outcomes and that are willing to provide the United States with reciprocal opportunities in their home markets will find a true friend and ally in the Trump Administration.
Who are these countries? The only way to make sense of such statements is that "country" means the government of the country. It is more useful to distinguish the two concepts. Countries are collections of individuals and trade no more than they eat, consume drugs, or travel. Only individuals do that. Even in a totalitarian country like China, it is ultimately individuals who trade, with or against the consent of their government. In a supposedly free country, a fortiori, it is individuals and their private entities who trade.

Of course, the current administration uses the same terminology as past ones, if only perhaps with a vengeance.

One could argue that talking about countries as if they were persons is just a figure of speech and a linguistic shortcut. Personification of countries seems harmless under the pen of David Ricardo when, in his Principles of Political Economy and Taxation, he writes, speaking of Portugal (and nicely using the feminine gender for countries):

Though she could make the cloth with the labour of 90 men, she would import it from a country where it required the labor of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of wines to the manufacture of cloth.
For others than Ricardo, however, this sort of "poisoned language" (to use the title of a chapter in Friedrich Hayek's The Fatal Conceit) is misleading and may lead to faulty reasoning, like thinking that a country, like an individual, might "choose" to purchase less from another country, even if some individuals within the country would want to buy more.

A collectivist methodology is useless because it does not help explain what happens in the social world. We have to start from individual preferences and actions. Most people--except perhaps some rulers--with a passing knowledge of the ways of the economic world understand that individuals and private entities, not countries, trade. In all times, smugglers have reminded us of this fact.

So perhaps the collectivist assumption that underlies protectionism is more of the normative kind: countries should be the entities that control trade. But this amounts to attaching a normative value to the supremacy of collective choices over individual choices, which is somewhat difficult to defend if one is not a communist or a fascist. Nationalism does not change that.

An example may serve to illustrate both the methodological problem and the normative judgment in considering a country as an acting entity. America does not travel to foreign countries; individual American residents do--about 35,000,000 of them a year (in 2016). And whether "America" should travel more less is either a meaningless or a liberticidal question. About 86% of the trips made abroad by American residents have "vacation/holiday" or "visiting friends/relatives" as one of their purposes. Given that Americans spent a total of $174 billion in travel and tourism expenses abroad in 2017 (data from the Bureau of Economic Analysis), a rough estimate of their leisure tourism spending is $150 billion per year (86% of $174 billion).

This is where the idea of a travel ban gets interesting. The $150 billion in leisure travel expenditures by Americans accounts for 27% of the estimated U.S. trade deficit in 2017. Spending on foreign airlines, tourist accommodations, and other purchases while visiting are of course imports since they use foreign resources to produce goods and services for Americans, and they are entered as such in official trade statistics. Thus, one way to significantly reduce the trade deficit, assuming it were a worthy goal, would be to ban foreign leisure travel by Americans. Note that this would require no reduction in business travel and the sacrosanct exports, although we must realize that many leisure trips would suddenly morph into business trips, the individual raising his ugly head again. Many Americans, perhaps a majority, would not be affected simply because they do not, or rarely, travel to foreign countries.

Thus, a ban on foreign leisure travel by Americans would have a potentially larger effect on the trade deficit than the $100 billion deficit reduction than the U.S. government is asking "China" to achieve ("U.S. Asks China for Plan to Reduce Trade Deficit by $100 Billion," Wall Street Journal, March 8, 2018). A foreign travel tax (or tariff) imposed to Americans by the U.S. government, if large enough, would achieve the same result. Note how a travel ban or tax works in basically the same thing as bullying "China" to exports less, for it means that foreign producers export to individual Americans less than what the latter want to buy.

Preventing "America" from importing via bans or taxes (tariffs) may not be a good idea after all. The first reason is that individual Americans (or their intermediaries or private organizations) are the ones who actually import. The second reason is that a moral justification for preventing Americans to exchange with foreigners--which is what protectionism amounts to--is not easy to find.

Comments and Sharing

CATEGORIES: International Trade

COMMENTS (8 to date)
Philo writes:

The government of a country is no more an individual than is the country itself.

TMC writes:

The article, ad the quote, are in the context of tariffs and trade agreements, which are made at the national level. Referring to the US and the EU as individuals seems correct in this instance.

Bedarz Iliachi writes:
Countries are collections of individuals

Just like a private company or a club?

Doesn't politics enter into the definition of a country? A country is, at least, a politically organized collection of individuals.

Pierre Lemieux writes:

@Bedarz Iliachi: Yes, like a private company or a club. The difference is that, in a private company or club, all individuals are there voluntarily. In countries (territories marked by political borders), some or many are forced to be members; or, at the very least, complicated theories are necessary to explain why they are not coerced. (In more or less free countries, most individuals can leave freely, but to go where? In many cases, moreover, they remain subject to the government of the country where they previously lived.) These remarks are not inconsistent with the definition of your last paragraph.

Andrew_FL writes:

Government *can* make purchases and theoretically they could purchase goods or services produced outside of their territory. For political reasons they generally do not do this-namely, it would be a missed opportunity to reward domestic political allies and brag about "creating jobs"

If the government *must* purchase goods and services it would probably often be more efficient to import some of them.

Hazel Meade writes:

Just like a private company or a club?

Membership in private clubs is usually voluntary.

adam writes:

Governments do have a pretty big influence on trade deficits in their roles as borrowers and spenders/consumers. The US Government is going to borrow nearly $1 trillion this year, which is over 5% of GDP. A lot of that borrowing will come from overseas. Surely that's a significant factor in the trade deficits we see.

Pierre Lemieux writes:

@Adam: Yes, the federal deficit explains most of the trade deficit (assuming that half of federal bonds are sold in foreign countries).

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