Professional Documents
Culture Documents
1. 3!YheF&mnd
,~. Freedom to Trade
by Edward L. Hudgins
New Protectionists
agents. But businesses are voluntary joint ventures by individuals seeking to better their lot.
If individuals have freedom, ceaainly goups of
individuals retain those liberties as well.
Critics, curiously including some conservatives, have argued that America should not
mix its economy with the economies of other
countries. But the economy does not belong
to America. It belongs to millions of individual private property owners who should be
free to use and dispose of their property as
they see tit. That freedom includes the right
to buy from and sell to the citizens of foreign
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l Third, trade deficits as such do not matter.
Whenever trade figures are released, grave
TV news anchors often inform us-in tones
usually reserved for airline crashes-that the
American trade deficit rose.
But nearly all individuals run trade deficits
with their grocery stores. The stores purchase
nothing from their customers. The customers
receive the products and the store receives the
money. The customers do not view that deficit as a problem. It is no more of a problem
in international transactions.
From an economic perspective, a trade
deficit in and of itself is neither good nor bad.
It simply means that in a given year the citizens of one country purchased more goods
and services than they sold overseas. A deficit
might result because the economy and purchasing power of consumers in one country
grew faster than in others. That would be a
sign of economic strength. Or a deficit might
result, for a short period, because a country
inflated its currency. That would be a sign of
unsound policies.
The United States does have an advantage
over other countries that allows it to run large
trade deficits for long periods of time without
its currency dropping low enough to produce
trade surpluses: the dollar is a reserve currency
for the rest of the world. Foreigners who eara
dollars for their exports may use some to purchase American products and some to invest in
America; but some of the dollars may be used
to purchase goods from suppliers in third
countries, and some may be. exchanged for
local currency from the exporters govemmeat. That government might then use the dollars as reserves-the way governments used
gold to back their paper currency in the past.
A trade deficit is not a problem Per se and
trying to eliminate one could seriously damage
an economy and lower the living standards of
consumers. Attention should more properly be
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A trade deficit is
not a problem per
se and trying to
eliminate one could
seriously damage
an economy and
lower the living
standards of consumers.
American
consumers.
Notes
Gary Clyde Hufbauer and Kimberly Ann Elliott,
bfeasuring the Cosrs of Protectionism in the United