Mark Perry has a nice table showing the top 10 US exports by category for 2012. He points out that the table is notable because the US is exporting a lot of petroleum. That is quite remarkable for lots of reasons. But I would like to focus on the overall composition of the table. Most of the entries on the table are essentially basic materials. They are the “ingredients” for manufacturing processes the outputs of which are things like consumer goods (TVs, computers, automobiles, drugs, toothpaste, etc.).

For those who think it’s a bad thing that the US always has a trade deficit, consider this: could it be any other way (given the composition of the table)? And is it really a bad thing? The answer to both questions is: no. If you’re exporting raw materials that get converted into things like computers, there is necessarily value added. Else, why export the materials in the first place? If you could make computers with more value added without exporting the raw materials then you wouldn’t export the raw materials. And to the second point: no, it’s not a bad thing at all. The value added comes from specialization of skill and manufacturing techniques and inexpensive labor. All of those specialties – in other geographic places – allow Americans to specialize in other things; namely, things that create even more value (like inventing stuff).

Never mind that the notion of a trade deficit is a purely accounting concept that doesn’t mean anything useful outside of an accountant’s head (Don Boudreaux at Cafe Hayek writes extensively about this. But the salient thing to point out to “prove” this point is that foreign investment in the US – a very good thing if you’re an American trying to start a company – adds to the trade deficit regardless of net imports or exports of goods). It’s clear from the stuff that the US exports (Mark P’s table) that whatever we import is going to be quite valuable – more valuable than if we made it ourselves.

-JD Cross

 

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