Obama's 'Export' Strategy Is a Laugh

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During his State of the Union speech earlier in the year, and then last week, President Obama talked up his latest economic growth plan, which is to increase exports. When the words were uttered, the mildly sentient among us doubtless didn't know whether to laugh or cry or both.

When it comes to economic policy, this President truly doesn't get it.

To see why, it should first be said that there's no such thing as an export strategy. In truth, we import so that we can export and vice versa, so if Obama really wants to increase exports, he should stress that we must increase imports.

Indeed, when it comes to trade, what individuals are really doing is trading products for products. We offer up one good, and exchange it for another.

This does not mean that our trade will "balance" for instance with China, but since trade concerns exchanges among individuals as opposed to countries, it does mean that in order for the Bostonian to import from Beijing, he or she must sell goods or labor to someone, somewhere in order to have the means to import.

Much the same, in order for the Chinese, Japanese or British to purchase our exports, we must buy their imports; that, or we must exchange dollars raised exporting to someone else for yuan, yen and Pounds in order to purchase what we want. All trade, by definition, balances.

Of course some, including mercantilist economists such as the University of Maryland's Peter Morici argue that our exports don't match our imports, that we're running economy retarding "trade deficits". Happily, simple logic exposes the faulty thinking there, and it has to do with what causes our alleged deficits in trade; specifically our capital surpluses.

To understand the above, we need only consider a hypothetical scenario in which Google co-founder Sergey Brin purchases a private jet from Montreal, Canada based Bombardier. The import of the jet would count as "trade" and would increase the alleged U.S. trade deficit. Brin's hypothetical sale of Google shares to a foreign investor in order to pay for the jet would not, conversely, count as an export.

Still, basic economics tells us that in order to import the jet, Brin would "export" shares of Google to fund the purchase. Looked at more broadly, we import more goods than we export precisely because a great deal of what we export is shares in some of the world's leading companies that don't count as exports. In short, our trade deficit results from a surplus of capital flowing into the U.S. thanks to investors viewing the U.S. as the best place to invest. All trade once again balances.

To put it more simply, Americans let the rest of the world produce goods not in their own economic interest to manufacture, and they frequently pay for those imports through exports of shares in companies that investors value even more. A more economy-enhancing trading relationship that produces capital surpluses stateside would be hard to fathom.

Looking at China once again, as the media, politicians and mercantilist thinkers regularly remind us, we import more from China that China imports from us. The good news, however, is that there's no negative economic story there either.

Indeed, if we purchase Chinese imports with our dollars, those dollars will flow overseas to Chinese producers. And unless Chinese producers stuff the dollars under mattresses, our imports will very certainly lead to exports even if the Chinese bank every dollar. That's the case because no act of saving ever detracts from demand, and if the Chinese put our dollars in the bank, they'll be lent to others with designs on American goods that will be purchased in dollars. When we import, we by definition export because those dollars will eventually return to the U.S. where they can be exchanged for something with a U.S. origin.

All of which brings us to production. We produce in order to consume, and when we import, we by definition export.

In that case, if President Obama truly wants to increase exports, his every goal should center on reducing the barriers to production that presently weigh on U.S. producers. Regulations inhibit production thanks to companies working around rules as opposed to producing goods that we can export in exchange for imports. So far Obama seemingly hasn't come across an economy-sapping regulation that he hasn't liked, but if exports are his goal, he would reduce the State's role in the economy.

Concerning trade, Obama has also been weak there too, so the simple answer is to open our markets for imports so that we can once again export. Tariffs are a tax on our production like any other given that we're not allowed to freely exchange what we produce for that of others, so the plan should be to seek trade agreements with every foreign country interested, all the while reducing barriers to imports altogether.

Income taxes are a price levied on the very production that enables us to export, yet a President who claims to love exports is planning on increasing them. Once again, we can't export unless we import goods in exchange for our production, so President Obama should seek to reduce income taxes in order to stimulate production.

Lastly, there's no production without investment, and presently the weak dollar is reducing investment. In that case, Obama should do like President Clinton and make a strong, stable dollar his Administration's policy so that investment increases, and with rising investment, production will increase that enables greater exports thanks to our productivity luring a lot of imports our way.

Ultimately, it can't be stressed that exporting is not a one way street. Those we desire to export to must have the means necessary to purchase our exports. In that case, if President Obama wants to boost exports, he must learn to love imports just as much. You can't have one without the other.

 

John Tamny is editor of RealClearMarkets, Political Economy editor at Forbes, a Senior Fellow in Economics at Reason Foundation, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He's the author of Who Needs the Fed?: What Taylor Swift, Uber and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank (Encounter Books, 2016), along with Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You About Economics (Regnery, 2015). 

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