In Maclean’s, Stephen Gordon collects six of the most common myths politicians use to justify trade distorting policies:
1) Exports are good. Not true; exports are the costs we pay for engaging in international trade. Diverting domestic productive resources to producing more things for foreigners doesn’t increase our standards of living.
2) Imports are bad. This is point one restated: imports are the benefits from trade. The reason we engage in international trade is to obtain goods and services more cheaply than we can produce them for ourselves.
3) Trade deficits are bad. I went though this at length in this post: noting that a country has a trade deficit (or, more properly, a current account deficit) is the same thing as noting that domestic investment is larger than domestic savings. It’s not obvious why this is necessarily a bad thing.
4) Trade deficits are a sign of a slowing economy. The Canadian trade balance is generally counter-cyclical: falling during expansions and rising during recessions. A trade deficit is standard fare for Canadian expansions, not something to get concerned about.
5) Liberalized trade increases employment. Again, this is point one restated. Liberalized trade may increase the number of workers in certain export-oriented sectors. But the effect on total employment in the economy is zero.
6) Liberalized trade reduces employment. Again, this is point two restated. Liberalized trade may reduce the number of workers in certain sectors vulnerable to foreign competition. But the effect on total employment in the economy is still zero.
