Foreign Trade

In the past, I’ve thought much like most politicians with respect to foreign trade. Export more and import less. Thus the money coming is greater than the money leaving, and therefore the nation as a whole becomes richer. It seems logical.

But as I’ve thought and studied more on the concept, I’ve realized that I’ve been wrong. The export more, import less concept is bad policy, and hurts us economically.

To understand this, it helps to do a quick study of money. Money is an IOU, a representation of value, but it has no value of itself. It’s paper. Just small slips of paper. But it represents the value of real goods and services. We use money so that we do not have to exchange actual goods, one for another, but instead exchange a good for its value, which we can use to exchange for another good of our own choosing.

So, when we export, we are selling our goods in exchange for their goods. When we import, they sell their goods in exchange for ours. Imports and exports are the same thing. The difference is only the timing of the receipt of those goods. When we export, they get our goods, and we get promissory notes of money that are good to purchase their goods at a time of our choosing. When we import, we get their goods, and they get our IOUs.

Having their money doesn’t make us richer if we never buy anything with it. It is buying power, but if we were to bury it and never use it, all we’ve done is given up goods in exchange for useless paper. So we see that trading goods for money is simply trading goods for goods later on.

Thus foreign trade is precisely making exchanges of goods for goods. Imports are the goods we want, exports are the price. Now with this understanding, is it better for us to export more goods than we import, or import more than we export? Would we rather pay more for less, or less for more? It’s pretty obvious that our policy should be to try to import the most for the least amount of exports.

Complexities arise with the future value of the foreign currency, where a nation may choose to hold a currency in the hopes of the value of the currency increasing in relation to their own. But this is no different than a simple currency exchange for investment at the time of transaction. The principle noted above still holds true, it just adds to the complexity of the decision of when to buy.

Let's start treating foreign trade as a benefit our lives, rather than a threat to our industry.