Is There an Asymmetry in Benefits from Trade?
By David Henderson
Don Boudreaux has written one of those rare letters that I don’t quickly agree with. He writes:
Discussing expanded American trade with the Chinese, President Obama told a business group in Honolulu “those are potential customers for us in the future” (“Obama Sees an Opening on China Trade,” Nov. 13).
Yep. And a bigger pool of customers is indeed good because in many industries it encourages larger-scale investments and R&D projects that allow firms to produce and sell at lower per-unit costs than are possible with only a smaller pool of customers.
But with his comment Mr. Obama singled-out the least-important benefit of American trade with China. Had he instead singled-out the most-important benefit he would have said instead about the Chinese people: “those are potential producuers for us in the future.”
If all Don said was that Obama left out a huge gain from international trade–the gain to consumers–I would have agreed with him instantly. In fact, I wrote about that in Fortune magazine in 2000. But that’s not all he said.
We generally measure gains from trade by adding the producer surplus–the area between the supply curve and the price–to the consumer surplus–the area between the demand curve and the price.
For Don’s statement–that the gains to U.S. exporters are substantially less than the gains to U.S. importers–to be true, demand curves for imports would have to be consistently less elastic than supply curves of exports. Are they? Maybe, but I’m not seeing it.