Further Thoughts On Trade Policy


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I was first exposed to trade as an 8-year-old. I was a collector of baseball cards, each of which had a picture of a player on one side and an enumeration of his achievements on the other. Each year, my ultimate goal was to acquire a complete set.

My initial strategy was to purchase packages of cards until I had every player, but that proved costly and left me with many duplicates. A friend then taught me that exchanging excesses for missing items was a superior strategy. That experience began my lifelong appreciation of free trade.

International commerce in goods and services is certainly more complicated than grade school exchanges of collectibles. But the broad concept—that trading maximizes outcomes for participants—is the same. As the United States and its economic correspondents contemplate trade restrictions, they would do well to remember this basic principle. We’ve written about the American steel tariffs in each of the last two weeks. But there remain some important points to make on the topic of trade.

1. The presence of a trade deficit does not mean that one side is playing unfairly. Different countries specialize in making different things. People in different countries may consume different baskets of goods. This means there will be situations in which flows of merchandise are not entirely even between nations. It should also be noted that countries trade services as well as goods, which can even out accounts. The United States, for example, exports more than $200 billion more services than it imports each year.

2. China’s trade practices warrant attention. The annual deficit with China accounts for half of the overall U.S. trade imbalance. Since China was granted entry to the World Trade Organization (WTO) in 2001, heavy industry and its accompanying employment have rapidly migrated east across the globe.

To be fair, this arrangement has brought broad benefits, including lower prices and wider selection, to U.S. consumers. But it has made things difficult for some American industries and the communities that house them.

China has periodically expressed a wish to open its economy more completely over time. U.S. exports to China have, in fact, grown substantially over the past 20 years. But a variety of restrictions continue to make it difficult for foreign firms to gain access to Chinese markets, and the potential theft of intellectual property remains a risk.