President Trump's recent claim that closing off its southern border would somehow produce a “profit” for the United States by eliminating the U.S trade deficit with Mexico would earn a first-year economics students a fail. But it does express some common underlying misconceptions about the economy and trade.
The president's comment seems to be based on the common but mistaken notion that exports are always better than imports, and the large U.S. trade deficit in goods create growth opportunity for the U.S. economy. But history, as well as basic knowledge of economics, tell us it is not closed borders but open ones that build prosperity. Moreover, manufacturing companies maintain production operations in developing countries like Mexico because it is necessary, and because it facilitates supply chains that make production more efficient, not less. By increasing scale, companies are able to bake a bigger pie, and give many a chance to cut off a slice rather than squabble over the crumbs.
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