Wednesday, 6 January 2010

Nations don't trade with each other; individuals do

Mark J. Perry makes a good point at his blog Carpe Diem: Nations Don't Trade With Each Other; Individuals Do. Perry opens by quoting the Washington Post
WASHINGTON (Reuters) -- The United States imported $2.74 billion of "oil country tubular goods" from China in 2008, more than triple the previous year, as a surge in oil prices led to increased demand for the oil well tubing and casing.
Perry then writes,
The statement above perpetuates a common misconception about international trade that clouds clear thinking about the topic. Technically, the United States did NOT import $2.74 billion of steel pipe from China, at least not as a "country." It was dozens, if not hundreds, of American-owned companies that voluntarily placed hundreds, if not thousands, of individual purchase orders in 2008 to purchase Chinese steel from dozens, if not hundreds, of steel-producing companies in China who filled the orders totalling $2.72 billion, and shipped the steel.
The reason this is important is,
Starting with the fallacy that countries, not individuals, engage in international trade, it's then much harder to realize that it's individual American companies and consumers who are penalized, taxed and disadvantaged by trade protection. By understanding that only individuals ultimately trade, it's then much easier to see that trade barriers typically protect a concentrated, small but well-organized group of inefficient domestic producers from more efficient foreign competition, while imposing huge and significant costs on other Americans - domestic companies that buy imported inputs and ultimately millions of U.S. consumers.
Remember it is companies that are trading, it's companies that have to pay the taxes (tariffs) to our own government. In the case of New Zealand tariffs on, say, Chinese goods the tariffs (that is, taxes) are being imposed not on the Chinese government or even the Chinese manufacturers, but on New Zealand companies who now are taxed for buying goods from China, and then those taxes are ultimately passed along to the individual New Zealanders who purchase the Chinese goods directly or purchase other consumer products that use the Chinese goods as inputs.

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