Both Sides Gain from Exchange
By David Henderson
My friend and blogging competitor Don Boudreaux writes:
You say that China’s agreement to buy more beef from America is “a big win for us.” Well, these beef exports from the U.S. are mostly a win for the Chinese people. From the perspective of us Americans, the beef that we export is a cost. That beef is part of what we give up in exchange for whatever it is we’ll import with the earnings that we receive on the beef sales. Our true benefit from this trade deal is chiefly in the additional Chinese chickens that we’ll now be allowed to import. Yet that’s a benefit that we could have – and should have – enjoyed even without Beijing’s agreement to let the Chinese people enjoy greater access to American beef.
It’s true that the beef exports are a win for the Chinese people. But I don’t think we have fine enough tools to know whether most of the benefits are to Chinese people or most are to U.S. beef producers.
Imagine that the Chinese have very close substitutes for our beef at comparable prices. Then their being allowed to buy U.S. beef benefits them but not by a lot. Their gain is called consumer surplus. Imagine (probably contrary to fact) that U.S. beef producers have few options for selling their beef to people other than the Chinese. Then the U.S. beef producers’ gain, called producer surplus, is quite large.
I have no prior view on which is larger. I do know, though, that both sides gain from exchange and so when they’re allowed to exchange more due to a reduction in the Chinese government’s barrier to exchange, that’s a win for both sides. So it’s not out of line for the person he’s responding to to celebrate the win for the U.S. producers..