Chris B

Should We Be Hoping for More Protectionism?

Why does everyone assume that there exists an "economic imbalance" when the net of a country's exports/imports is anything but zero?

If a Chinese entity wants to trade shoes, computers, toys, etc. for US dollars and investments, and a US entity decides to make that trade, how is that an imbalance?

If the market price of something is it's value, then that crate of Chinese-made digital cameras is worth exactly the $10,000 USD that was traded for it. Similarly the $10,000 USD is worth exactly one crate of Chinese digital cameras. At the market price, it is a swap of equal value assets.

Of course, if you only look at the flow of currency and not at the flow of goods and services, there is an "imbalance" of $10,000 because that money left and no other currency came back. However, something did come back - a crate of digital cameras - worth exactly $10,000. The net "imbalance" from an open market trade is always zero.

However, both the Chinese entity and the US entity are better off because of the trade. They both got something they needed more than whatever they gave up to get it. To the Chinese entity, $10k is worth more than a crate of digital cameras. To the US entity, a crate of digital cameras that they can sell for $13k is worth more than $10k. If a government came in and prevented trades like this, neither entity would be able to get what they need and both would be out of work. This would be thanks to a govt. that was trying to "protect" them.