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Jewish World Review August 27, 2003 /29 Menachem-Av, 5763

Walter Williams

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Consumer Reports

Foreign trade angst | I've written a nationally syndicated column for nearly 25 years. Columns critical of Social Security and handouts to farmers used to bring the angry self-serving mail. Now it's international trade. Let me address some of the issues raised.

First, it's misleading to say that the United States trades with Japan, China or England. Does one really think that the U.S. Congress trades with England's Parliament or the Japanese Diet? When I purchased my Lexus, I dealt with a Japanese producer through an intermediary, the auto dealer. To my knowledge, the U.S. Congress and the Japanese Diet had little to do with the transaction, save attempts to sabotage it through regulations and taxes.

Now the question: What moral standard justifies third party use of force to prevent an American from exchanging with whomever he pleases, whether that person lives in Montana, Mexico or Japan? Some might rejoin: Through trade restrictions, other countries don't permit their citizens to trade freely. That's true, but should we support the notion that, for example, since the Japanese government doesn't permit its citizens to be free the American government should retaliate by denying its citizens the right to trade freely? Is your answer yes or no?

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Here's another thought to ponder upon. Because of restrictions on the importation of rice, so as to benefit rich Japanese farmers, Japanese citizens pay four times the world price for rice. Should Congress retaliate by creating restrictions forcing Americans to pay four times the world price for rice or some other commodity? Yes, or no?

One writer lamented that there's a deal in the works to permit Vietnam to sell millions of cotton shirts and slacks to Americans. "But we never hear about what Vietnam will buy from us." Let's look at this: When a Vietnam producer sells an American a shirt, he gets dollars in return. What's he going to do with those dollars: hide them in a mattress, paper the wall with them or just cherish them? It'd be great if foreigners did that; we'd have near heaven on earth. We'd simply put a few Americans to work printing dollars, and the rest of us could live lives of Riley whilst the rest of the world labored and shipped us Lexus, Mercedes, caviar, steel, clothing and other life-comforting goodies all in exchange for these wonderful little slips of paper called dollars.

Unfortunately, that doesn't happen. That Vietnamese producer might use those dollars to purchase something from a German producer. The German producer might use the dollars to purchase something from a Japanese producer. People willingly accept those dollars because, ultimately, they represent a claim on something in America. You might ask, "OK, Williams, I go along with what you're saying so far, but if that's true, how come we're running a large balance of payments deficit?"

Do a Web search for major foreign holders of U.S. Treasury securities. As of June 2003, foreign holdings of U.S. Treasury bonds totaled $1.347 trillion. Japan is the largest holder with $441 billion, followed by England with $122 billion and Mainland China with $122 billion. Thus, dollars are coming back to America, in this case to help sponsor Congress's profligate spending. Also, we mustn't forget that foreigners also use their dollars on Wall Street to purchase stocks, bonds and other financial instruments. All the nonsense we hear about balance of payments deficit ignores the fact that there are two types of accounts: a goods and services account and a capital account. Any imbalance in the goods and services account is offset by the capital account (stocks and bonds).

The bottom line is that free trade, while it might mean painful adjustments for the few, benefits immensely the many through cheaper prices and wider choice.

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© 2002, Creators Syndicate