Monday, August 20, 2007

Trade Balanced

Don Boudreaux:

Here's advice for your readers: ignore anyone who complains that trade is "imbalanced." I have never encountered any such complaint that makes even a whiff of economic sense.

Exhibit A is today's letter from United Auto Workers' President Ron Gettelfinger. Mr. Gettelfinger grumbles that "the U.S. and South Korea have a huge imbalance in auto trade." Well, duh - that's an inevitable consequence of specialization. Although we cook in our household, my family still has a huge "imbalance" in the prepared-food trade with McDonald's. But we would make ourselves only poorer if my family and I refused to buy from restaurants that do not buy equal amounts of prepared meals from us. In this case, what is true for each household is true for the collection of households that we call the United States.

If trade (exchange) is voluntary (freely engaged in) each party to the exchange is better off. How can trade ever be "imbalanced" if each and every exchange means each party to the exchange is better off?

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