Thoughts Out of Balance


Kurt Bouwhuis, Mackinac Center Intern

Here is a letter I recently sent to the New York Times:

In his recent op-ed, Paul Krugman expresses great concern over the growing trade deficit between the U.S. and China (“World Out of Balance,” Nov. 15).  A simple example reveals why such concerns are pointless.

Suppose an American businessman decides to trade with China.  He loads American cargo valued at $200,000 onto his ship and exports it to China.  When the ship arrives in China, he sells all of his goods for $250,000 generating a profit of $50,000.  He then uses all of his proceeds to purchase Chinese cargo valued at $250,000.  He loads the cargo onto his ship and brings it back to the U.S.  The net result of this profitable transaction is a trade deficit of $50,000 for the U.S. 

There is, however, a simple way to convert the $50,000 trade deficit into a trade surplus of $200,000 — sink the returning ship and all of its Chinese cargo in the middle of the ocean before it reaches the U.S. port – the import will be nonexistent and our trade balance will gain all that the oceans have swallowed.

Kurt Bouwhuis

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