People and Businesses Trade, Not Countries

There's a growing anti-trade sentiment in our country. Much of the dialogue is grossly misinformed. Let's try to untangle it a bit with a few questions and observations.

Does the U.S. trade with Japan and England? Put another way, is it members of the U.S. Congress trading with their counterparts in the Japanese Diet or the English Parliament? Of course not. When I purchased my Lexus, I had nothing to do with either the Japanese Diet or the U.S. Congress. Through an intermediary, a Lexus dealer, I dealt with Toyota Motor Corporation.

While it might be convenient to speak of one country trading with another, such aggregation can conceal a lot of evil, particularly when people call for trade barriers. For example, what would be a moral case for third-party interference, by either the Japanese Diet or the U.S. Congress, with an exchange between me and Toyota Motor Corporation?

Some might reason that since Japan places restrictions on U.S. products entering their country, an appropriate retaliatory measure is not to allow Japanese products to freely enter the U.S. Consider that Japanese protectionist restrictions on rice imports force Japanese consumers to pay three or four times the world price for rice. How much sense does it make for Congress to retaliate against Japan by imposing restrictions on their products thereby forcing American consumers, say Lexus buyers, to pay higher prices? Should our rule be: If one country screws its citizens we should retaliate by screwing our citizens?

~George Mason economist Walter Williams

MP: It's a simple, but overlooked point: Countries don't trade, individual American consumers make voluntary decisions to buy products produced by foreign companies (e.g. check the country of origin on the tags/labels on your clothes), and individual American businesses voluntarily buy from, and sell to, foreign firms and consumers. Most of the discussion about trade focuses on aggregate trade statistics at the "country level," like reports of a $56.5 billion U.S. trade deficit in September, a $700 billion U.S. trade deficit for 2007, a $195 trade deficit with China this year, or a $14 billion trade surplus with the Netherlands this year.

Like Walter Williams points out, those aggregate trade data can disguise the fact that it was individual American consumers and businesses making voluntary decisions on buying and selling products every day that result in some country-level trade deficit or surplus when trade data between the U.S. and other countries is aggregated at the end of a month, quarter or year.

Bottom Line: People trade, not countries. Therefore, any restrictions on trade in the form of protectionism hurt American people, i.e. U.S. consumers, and the workers and shareholders of U.S. businesses. A tariff on Japanese-made products is not a tariff on the country of Japan,it is really a tax on American consumers and businesses who voluntarily decide to buy products made by Japanese producers.