International trade has improved living standards in the United States and lifted millions in the Third World out of poverty. World Trade Week, which concluded May 24, is a welcome addition to our list of officially celebrated weeks. Unfortunately, the rhetoric surrounding it misconstrues the benefits of global commerce.
President Obama started the event on the wrong foot when, in his official proclamation, he pledged to "redouble our efforts to promote trade while protecting workers, safeguarding the environment, and opening markets to new goods stamped, 'Made in the USA.'"
The president's biggest mistake was to focus on exports. He touted his dedication to "supporting high-quality American jobs through exports" and boasted about how his trade policies are "selling more American goods and services overseas" and "our exports supported 11.3 million American jobs." He also mentioned a new phase of his National Export Initiative he hopes will "open up markets to our exports in the world's fastest-growing region."
But not once in his 521-word proclamation did he ever mention the more important side of the trade equation: imports.
Yet, imports are what improve our lives, whereas exports are merely the price we have to pay to get them. Consider your own household. You "import" goods and services from retailers, restaurants, and hairdressers that improve your life. To pay for those goods and services you "export" your labor to an employer for a salary or borrow funds from someone's savings. In our own daily lives most of us understand that a job, while necessary, is not itself a benefit but rather the cost we must pay in order to acquire the goods and services we desire. In international trade, exports serve the same function that jobs do in our personal lives. The Toyotas and t-shirts that we import are what raise our living standards. Unfortunately for us, our trading partners don't just give us imports for free. We pay for the imports by exporting goods and services, borrowing, or selling assets. Regardless of the form it takes, the payment belongs on the cost side of the ledger. The imports are the benefit.
In 2013, U.S. citizens imported more than $2.7 trillion worth of goods and services and had to give up almost $2.3 trillion worth of exports in order to get them. The roughly $400 billion difference, the so-called trade deficit, was covered by selling assets and by borrowing. (Overall, when assets and goods and services are counted together, trade always balances. It's an accounting identity.)
Many people focus on exports because they mistakenly focus on visible jobs. When an export industry grows, we can easily see the jobs created and the people who work in them. Similarly, when imports put a domestic company out of business, news cameras allow us to see the faces of workers who lost their jobs. What usually goes unseen are the jobs that imports create. More than half of U.S. imports are raw materials or components that go into the manufacturing of another good. Imports allow the industries that use them to increase their output and hire more workers.
Overall, international trade does not impact total employment. Rather, it changes the mix of jobs within the trading countries in ways that better match their relative strengths -- what economists since David Ricardo have called "comparative advantages." This is why trade enlarges the total economic pie and enables citizens in all countries to benefit. Unfortunately, the mistaken emphasis on exports has enormous costs. Often it encourages politicians to demand access to foreign markets in return for "giving up" access to their own market. But the reality is that allowing imports into our own country makes us richer whether or not the exporting company reciprocates.
Now for the good news.The freeing of international trade over the past 70 years has greatly improved living standards around the world. But we can do much better. Millions of people remain impoverished due to restrictions that limit free trade in labor. World Trade Week is welcome recognition for the importance of trade, but we'd be better off if it emphasized the mutually beneficial nature of trade, rather than the supposed benefits of exports, and if it focused more on the benefits of labor mobility -- in other words, immigration of eager workers -- rather than just trade in goods and services.