An introduction to the revolutionary new, quick-to-grasp 100 page book
TRADE MYTHS EXPLODED
MYTH ONE
IMPORTS KILL JOBS
- So let’s protect ourselves against unfair imports.
When it comes to getting elected, politicians play the blame game with the jobless figures. One way to deflect criticism is to accuse “unfair” imports of killing domestic jobs. This conveniently ignores the many real reasons for unemployment, such as inadequate education and under-qualified workers, heavy taxes, onerous government policies and poor corporate strategy.
MYTH TWO
EXCHANGE RATES DRIVE TRADE
- So let’s make other countries devalue their currencies.
This one allows politicians to deflect attention from their own unemployment-creating policies by blaming the low exchange rate of a country that is running a large trade surplus with America. The logic here is that if only the exchange rate of that country were stronger, America would have no deficit. It’s all very well to hector other nations to lower their rates, but these protectionist politicians, by definition, are devaluing the greenback. As we already see, this foments higher “imported” inflation and thus higher interest rates; besides, foreigners want to shed their increasingly devalued dollar-based assets. Ultimately, telling others to revalue threatens American jobs. From 1985 to 2008 the US dollar fell by about half in terms of its trade-weighted exchange rate with major trading partners, but America’s trade deficit expanded nearly seven-fold Meanwhile, Germany and Japan have trade surpluses despite rising currencies…
MYTH THREE
TRADE BALANCE IS A NATIONAL MATTER
- So imports hurt us.
Armed with the twin myths that imports kill jobs and that “undervalued” foreign currencies cause America’s trade deficit, it’s a short step for politicians to depict the deficit as a threat to America. This national perspective is that Fortress America is under threat, leading to the emotive notion that foreigners, usually Asians, are about to launch an economic “9/11” on America. The reality is that the bulk of America’s trade deficit is not about “bad” foreigners banning imports from America, nor is it about Americans buying “unfair” imports from abroad. Instead today’s globalized reality is that America’s trade deficit mirrors the fortunes of her very own MNCs’ success at tailor-making and thus selling goods directly in the overseas markets in which they operate. MNCs obviate the need for many exports. Laconically put, if IBM is produces tailor-made computers in Japan, then why need the Japanese import IBM computers from America?
MYTH FOUR
AMERICA’S TRADE DEFICIT IS BAD
- Which means that Americans are “living beyond their means”
Viewing trade balances as “national property” enables many US politicians to label the country’s trade deficit as bad – something that must be done away way with. By this definition, anyone with a deficit is living beyond their means, with all the Puritanical disapproval that phrase implies. The whole argument stems from Mercantilist thinking of the 18th century, when companies operated within their national borders and huge gold reserves were desirable for financing wars. But this is 2008: which firm is so virtuous or stupid that it never borrows? Try telling that to America’s gigantic financial firms!
The intellectual backup to this sophistry is the “savings investment balance”, whereby a country’s trade deficit is funded by savings. This must be challenged as the emotional heart of the outdated Mercantilist mantra: “Our trade deficit is bad, because we live beyond our means – and thus have no savings.” But this disingenuous view perniciously avoids working with today’s reality: America’s trade deficit is due to the outstanding overseas successes of our multinationals’ overseas operations.
