The Politics of Trade Deficits

Ashish's Niti links to an interesting point about the trade deficit from Business Week, By Michael Mandel:

The Trade Deficit vs. Human Capital

Sure, U.S. imports far exceed exports, but those figures don't tell the whole story, especially the value immigrants bring to the country.

I'm getting tired of people whining about the size of the trade deficit. Yes, the U.S imported $617 billion more in goods and services in 2004 than it exported. And, yes, $617 billion is an awfully large number, even for a country as big as the U.S.

I wonder if the Balance of Trade is still calculated the as it was when Bastiat ridiculed it.

In that chapter, he tells of examining the books of an exporter friend of his who sent a shipment of goods to the US, valued at £ 200,000. The shipment sold for £ 320,000, minus a US tariff of 20%, leaving a profit of £ 40,000. The cash was converted to cotton, and with additional shipping expenses was entered at the Le Havre customs house as valued at £ 352,000, which was then sold in France for £ 422,400.

According to the French Government, France had lost £ 152,000 on the deal, whereas, the fact is that the French businessman's bottomline was actually increased by £ 70,400.

Another such shipment left LeHavre and sank, but was entered in the customs books as £ 200,000 pure profit for France. That's where the ridicule comes in. Read the last couple paragraphs of the linked chapter for the punchline.

Ha! I said something more succinctly than Bastiat!

I imagine government economists are more sophisticated in their sophistry these days, though watching the perfidy produced in the Senate debates lately does not build confidence in our political classes.

But, that's a bit of a digression. Mandel's point is this:

The benefit of such human capital is crystal clear in the case of, say, the foreign engineer who helps start a Silicon Valley tech company. And the U.S. also gets something from a hard-working landscaper or construction worker who recently came from another country. It's even true for the foreign college graduate who comes to the U.S. to get advanced training, and stays. In each case the U.S. has gained someone who can contribute productively to the economy, without most of the earlier costs of raising or educating that person.

Human minds and bodies are valuable assets, and more so in an economically free society, is the point I take from Mandel. RTWT.