L. Neil Smith's
Number 302, January 16, 2005

"We now return you to your regularly scheduled agitation."

The "Trade Deficit" Claptrap Disserves America
by Todd Andrew Barnett

Special to TLE

President Bush's protectionistic and mercantilistic record on trade shouldn't be a complete surprise to any ideologically pure, hard-core libertarian who has been a tireless, staunch opponent and critic of his federal policies. Let's not kid ourselves for an instant. We are, undoubtedly, talking about the same president who has spent the last four years of his first term, expanding the power not only the power of the presidency, but also the cost, size, and scope of the federal leviathan.

This is also the same president who has gone on record with slapping tariffs on imports such as steel, shrimp, lumber, catfish, furniture, lingerie, brassieres, sugar, computer chips, cotton, textiles, and flowers. Oh, and let's not forget the $190 billion bill he signed in 2002 to bring back the federal farm subsidies program, which was supposed to have been phased out then.

Let's not even forget that this so-called compassionate conservative president is the same one who has inflated funding for programs such as the National Endowment for the Arts, the Departments of Health and Human Services and Education, and the Peace Corps. Have the so-called libertarians in the Republican Party forgotten, by now, the administration's push of its fraudulent Medicare drug prescription benefit, claiming that it would cost $400 billion to finance it, the actual cost estimating to be between $500 billion and $600 billion notwithstanding? He's also the same one who imposed upon the American people new spying powers (i.e. "the Patriot Act and the Patriot Act II"), an expansion of the warfare state (i.e. "the U.S. Department of Homeland Security"), unfettered federal spending across the board, piddling tax cuts without any significant spending cuts, and two unconstitutional and unnecessary wars (i.e. "The War with Afghanistan and the War with Iraq"). And before it gets any better, Congress abdicated its constitutional responsibility to declare war by authorizing military strikes against Iraq. (The resolution created the illusion that the body "abided by" Article I, Section 8 of the Constitution to "declare" war. But Congress did nothing of the sort, because it actually gave President Bush the power to make war with Iraq anytime he felt like it.)

The trade record not only epitomizes the president's abuse of power in office, but it also proves how intellectually dishonest he is on the matter. His recent statement on the United States' alleged trade deficit is the most obvious. According to the Chicago Sun Times—after his meeting with Italian Prime Minister Silvio Berlusconi regarding the issue of the devaluation of the U.S. dollar in contrast to the Euro (the currency of Italy and 10 other European countries)—Bush was Bush vows to address deficit, support the dollar as saying, "People can buy more United States products if they're worried about the trade deficit."

Apparently this issue troubles so many Americans to the nth degree. After all, Bush's statement is fashioned to strike a chord with many people who are plagued with this nationalistic sentiment. What other issue can help them feel better than chucking cheap, quality-made goods and purchasing more expensive, American-manufactured counterparts? This might raise their spirits in the short term, but it will do nothing to help the U.S. economy or the people in the long term.

However, let's be dead honest though. While I doubt that Bush made that assertion in jest, my feeling is that Bush's "honesty" on the issue is dubious at best. When he, in part, says that the American people can purchase more American-made goods than the foreign-made ones "if they're worried about the trade deficit," one can take that to mean that he didn't mean anything by it.

Let's put it this way: if Bush means it, then he's been duped into believing one of the most idiotic sophistries in its purest form. But if he doesn't mean anything by it, then he's just responsible for deliberately begetting that sophistry. Nevertheless, it would be prudent for Bush to watch his step at all costs.

Let's take a look at the facts as they are presented. First, "buying American," which is the issue at the moment, doesn't do anything to help America—or Americans—in any way, shape, or form. Purchasing foreign goods doesn't harm the country, nor does it put us at a severe disadvantage, as the critics and opponents of free trade would have you believe. One would have to be entirely naïve to believe the opposite. Putting it bluntly, the trade deficit is nothing that needs to be corrected. It's a deficit if you only don't count everything. If your expenditures were examined but your income was ignored, then, yes, you would have a personal deficit. However, you would be failing to take a good look at the entire, big picture if you did just that.

When the subject of the so-called trade deficit is raised, the individual making the issue needs a serious Economics 101 lesson. This "deficit" is merely a reference to the current account, which tracks Americans' exchanges of goods and services with individuals in other nations. If in the aggregate during a given calendar year the dollar of the goods and services we purchase from foreigners surpasses the dollar value of the goods and services we sell to them, we are told that the difference is the trade deficit. However, this is only a half-truth, certainly because foreigners can make use of the dollars they earn in lieu of purchasing American goods and services. They can legally invest in the United States by buying stock in companies or corporate bonds. That's actually a boon for Americans because this helps create new jobs and new products that they can enjoy. Perhaps it hasn't dawned on the American public yet that foreigners can even purchase government securities. (Note: one easy way to prevent foreigners from assuming the role as creditors for the federal government—that is, if this way disturbs anyone—is to eliminate deficit spending.)

What is the point of this, you ask? It's simple. By accounting for everything—purchasing, investments, and dollar holdings—the books end up balancing in the end. Such a transaction is a responsible accounting surety.

Does "buying American" serve America in the long run? No, absolutely not! This protectionistic ploy actually harms specific groups of Americans. If we as consumers choose to buy Yamaha and Honda motorcycles in lieu of the American-made Harley Davidson bike, the Japanese will rake in dollars with which they can use to purchase, say, American-made clothing. (They don't have the dollars to spend in their own stores.) However, if a round of phony patriotism rolls all over the country and we decide to buy only American-made motorcycles, the Japanese won't earn the dollars they need to purchase those clothes. Those clothing companies will make fewer sales and, as a result, will lay off their employees. Because of this, has America been strengthened by the "Buy American" policy? Nope! Not by a long shot! Some Americans will reap the benefits, but most will sadly suffer because of it.

Obviously there is no doubt that most Americans are ignorant of our current trade policy and its scathing and catastrophic effects. They fail to understand that we live and partake in a global economy that includes a widening division of labor, which happens to be the greatest exercise in global and voluntary social cooperation ever witnessed. Individuals—not nations—trade with each other. As an American, just because I stand next to someone who is from the same country as I, it doesn't mean my interests are the same as his. If a Japanese motorcycle maker offers me a bike that I like because it has the features I want at the price I'm willing to pay, my interests are the same with that group of Japanese. "Buying American" isn't going to make my life any better at all. The only thing it would do is to harm some Americans. (Don't forget the clothing laborers.)

If American motorcycle makers turn to the government to protect them from Japanese competition—thus making it harder for me to purchase a Japanese motorcycle, my interests are not served at all. Given that's the case, how can that policy serve America in every way?

If anything, Americans need to understand this: the "trade deficit" claptrap disserves America. If we want to put an end to this, we need to jettison the trade nonsense that fills up the space of the nation's newspapers and the airwaves of news shows on a daily basis. America needs to realize that voluntary exchange is a boon—not a bane—for both buyers and sellers; otherwise, it would not transpire. Where the parties live—whether or not they live in different countries—is irrelevant.

© 2005 by Todd Andrew Barnett. All Rights Reserved. Permission to reprint any portion of or the entire article is hereby granted, provided that the author's name and credentials are included.

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