The Case for Trade

Many economists have recently been banging their heads against the wall as they attempt to explain why trade does not destroy jobs. Russ Roberts of GMU put together an informal paper that includes the following remarkably simple and illuminating example.

The U.S. has exported more dollars worth of food than it has imported, a trade surplus in food, every year since 1963.

If you argue that deficits cause job loss, you have to argue that a surplus should create jobs. But there are fewer than half the number of workers in the agricultural sector than there were in 1963, despite increases in population and increases in labor force participation that have doubled the overall labor force.

The decline in the importance of agriculture as a source of employment is caused by the same thing reducing manufacturing employment: productivity.

In fact, a trade deficit is merely an accounting anomaly. The balance of payments account is an identity, so it must, by definition, sum to zero. A trade deficit is synonymous to a surplus in foreign direct investment. In this light, a trade deficit (in the way it is reported, at least) is a meaningless statistic.

I have a HUGE trade deficit with Banana Republic and Barnes and Noble (in fact, I don't manufacture ANYTHING).

• Question: Would I somehow be better off if I had to print all of my own books and sew all of my own clothes?
• Answer: If I would be better off, I would already be doing it.