07.31.2010 0

The Trade Deficit Widening Should Be Praised

  • On: 08/11/2010 21:44:07
  • In: Economy
  • By Adam Bitely

    We live in an odd world. All too often, good news is turned on its head and made out to be bad news. Such good news that is often dragged through the mud is the trade deficit widening. Each time that it is reported to widen, the news organizations and the protectionists come out and trash the news. But what is so bad about having a trade deficit?

    For starters, a trade deficit occurs when a nation imports more than it exports. Currently, the U.S. imports more than it exports. Protectionists argue that more imports than exports harms American jobs and business. However, such arguments fail to understand the law of supply and demand.

    When a nation has higher imports than exports that sends a couple of important signals.
    First, it indicates that it is cheaper to meet demand by importing goods from other places. Division of labor across the globe creates efficiencies that are realized when imports help meet the demand of those in the marketplace. There is nothing wrong with this. It simply means that there is such a high demand for certain goods that companies around the world are finding ways to help meet that demand.

    Second, the current trade deficit in the United States indicates that it is cheaper to produce goods outside of the nation than inside of it. This could be due to all of the following factors: labor unions, high minimum wages, taxes, government regulations, etc. While protectionists argue that jobs are lost because of outsourcing to companies overseas, they are never looking at the causes of those jobs leaving. The production of certain products is simply not worth the cost in America. Importing the goods from overseas is a good thing in this case as it saves the consumer money.

    Just think of the trade deficit this way. If a consumer goes to a deli to purchase a sandwich, does a trade deficit occur between the person consuming the sandwich and the company that makes it? If we followed the protectionist arguments, it would. But they would never say so. When the company hands the sandwich off to the consumer, they are not receiving a sandwich back in return. Both parties though receive what they want. The company wants to make money and the consumer wants to spend money on a sandwich. No trade deficit here.

    And the same goes with the United States. Consumers wanted their goods at a certain price and overseas exporters were able to meet demand. There is no true deficit in the relationship between the companies and the U.S. consumers that do business with them.

    Besides, as long as the federal government is going to impose outrageous taxes on American businesses, enforce a minimum wage that prices workers out of the workplace, and support the thuggery of Big Labor, the supposedly evil trade deficit that delivers cheap goods will remain commonplace and deliver cheaper but quality goods to all consumers.

    Adam Bitely is the Editor-in-Chief of NetRightDaily.com for Americans for Limited Government.

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