Daily Traders Edge

Sorry, Foreign Trade Is Not Bad For America – Restricting It Is

February 14
09:54 2018

According to the roundup of histrionic headlines this week, we’ve just hit a “record high” trade deficit with China. Commentators from across the political spectrum are speculating about what this might mean in the months to come, but before we buy into any narratives of worry or dismay, we should take a closer look.

First, people trade with one another — countries do not. If I choose to purchase Mexican tomatoes, then I trade with someone in Mexico.

Granted, it is a little more complicated than that, but ultimately I am trading with someone else for those tomatoes.  You might be told that the United States is trading with Mexico, but only if you could give me Mexico’s email address would I believe such a thing could happen.

Mechanically, how trade works is I trade my dollars to the owners of the grocery store, who then trade these dollars for pesos and use these pesos to trade with someone in Mexico who has produced the tomatoes. Notice that trade is a voluntary exchange, so both parties are better off. I am better off with the tomatoes and the tomato grower is better off with the pesos; otherwise, the trade would not have happened.

Continue Reading at Investor’s Business Daily

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