During an appearance on CNBC’s Squawk Box on Tuesday, Senator Rand Paul (R-KY) strongly challenged the idea that America is being taken advantage of in international trade deals simply because it runs a trade deficit. He argued that the entire premise is flawed and reflects a misunderstanding of how trade works.
“I mean, the whole debate is so fundamentally backwards and upside down. It’s based on a fallacy, and the fallacy is this, that somehow, in a trade, someone must lose. That somehow, when you trade with someone, there’s a loser and someone’s taking advantage of you, and China is ripping you off, or Japan is ripping you off. It’s absolutely a fallacy. Every trade that occurs in the marketplace is mutually beneficial,” Paul said.
Explaining his position further, Paul offered a simple analogy to illustrate how voluntary exchange is inherently beneficial to both parties involved.
“If you have a free society and I trade with you, if you want to sell me your coat and I give you $200 for it, we both agree to it and we’re both happy with the trade. No American consumer trades with China. They trade with Wal-Mart or they may buy something from China, but they individually buy something they want and they make a decision. The trade is always a win-win. Now you can artificially do this accounting between countries and say, ‘Oh, trade deficit, look at this trade deficit,’ but I have a trade deficit with my grocery store.”
He continued by pointing out that the concept of a “trade deficit” often distorts the actual value of the transactions taking place, especially when applied to individuals or businesses.
“The people who employ me, if I work for Corvette and they employ me, they have a trade deficit with my labor. They buy my labor and I never buy their cars. So you can have this artificial accounting and it makes it look like a bad thing, but you have to ask yourself, is trade good or bad? And if you look at the trade deficit, in times of a recession the trade deficit goes down. So if the tariffs push us into a recession, we could reduce the trade deficit because we’re all buying less stuff. We have to get back to the fundamentals of, is trade good or is trade bad?”
{Matzav.com}