Are Exports Good?

Now, I know this is a question that most people will answer with a resounding “YES!” After all, exports are the sign of a strong economy, right? And the reason that we’re so pissed off at China is because they keep sending us goods and we’re not sending them nearly as much in return, right?

Well, if you believe in 18th-century mercantilist theory, as I believe the Chinese do, you’d say yes. I don’t know that it is the right answer, though.

Let’s look at your personal lives for a moment. In order to live and be comfortable, you must buy food and goods, pay for shelter, etc. These are imports. Unfortunately, you need to pay for these imports, and to do so you must trade your labor, your chief export, for dollars that allow you to buy the imports.

What’s the ideal situation? Well, outside of the personal accomplishment many of us feel from working, the ideal situation would be to not work at all, and only receive imports. If you really want to be rich, you would import constantly and never export anything! Of course, that’s not possible for us. We as individuals cannot print money that people will accept for those imports they’re selling, so we must exchange something of value for them. Granted, in the world of voluntary transactions and division of labor, we are both being made richer through this trading process, but we are still forced to export labor in exchange for those imports.

Now, step outside of this situation for a moment, and look at the wider national picture. Should America find exporting to be beneficial? Is an export the sign of a rich populace? I would say that it is not. It may be a productive economy, and there may be low unemployment, but we are working to send stuff away to other people, rather than to be consumed here. A nation which exports constantly without importing an equal number of goods is sending away the fruits of their labor to other nations. They’re becoming poorer in the process!

Ahh, but there’s a conundrum here. That nation is not just sending those exports out as a charitable act, they’re doing so in exchange for money. But what is money? Is money a tangible store of wealth? If money is a tangible store of wealth, they are simply deferring consumption, and not becoming poorer. This is like the individual who wants to save to buy a house, so he defers consumption and lets his bank balance increase to save a down payment. He is not becoming poorer by saving. But what if money isn’t a tangible store of wealth? What if money, due to printing, is a constantly depreciating asset? Well, then the exporting nation does not benefit from the exports. They may have full employment, but they are not making their society richer. (Note that this is a general statement, and the productivity gains and economies of scale generated from such production may– and usually will– have side benefits for their society).

So what is the ideal for a nation? Well, for a nation, the ideal is to fool the world into believing that you’re sending them something of value in exchange for their exports, when you’re really just sending them an empty promise. They take that promise and store it in a “reserve”, where it slowly rots. As we pointed out here and here, America has been taxing the rest of the world in the form of their imports for the last 40 or so years (the time during which the dollar was the world’s reserve currency). America has been getting something for nothing from the world, and thus it’s silly for us to export goods to them instead of using those productive resources to satisfy ever-greater internal demands.

America may see exports as a good thing, but all they really are is a way for other countries to exchange their dollar reserves for durable goods. This is not something we want. We want other countries to hide their dollar reserves in a locked vault and never let them out, because if they use these reserves to start buying goods, the prices rise and we see the inflation that’s been hiding for the last 40 years. As long as those dollars leave our shores and never come back, we’re getting a free lunch. When the world decides they actually want to redeem those dollars for goods, we’ll all be working our butts off and sending the product of that work overseas. Sure, you’ll be making plenty of money by doing all that work, but everything you buy will have risen in price to the point that you’re not better off.

Just like an individual cannot borrow forever, the dollar hegemony won’t last forever. It will come crashing to a halt, and eventually result in crippling inflation and probable war. After all, if the world ever learns that mercantilism doesn’t apply when fiat currencies reign, they might become very upset with America. And rightly so, as they’ve held these dollars expecting us to keep our promises (and keep the dollar stable), and we’ve reneged on that promise. In the process, we’ve gotten a lot of something for nothing, but someday the bill will come due. When the bill comes due, it’s your butt in the factory seat that will be paying it.

  • Jono

    Not sure I agree with the last paragraph there. How can the world be angry with America’s fiat money system when every other country does exactly the same thing, to one extent or another.

    What do you mean by “they’ve held these dollars expecting us to keep our promises” ?

    We gave them dollars for imported goods. The trade was fair, the foreign countries accepted the risk of currency fluctuations.

    I don’t think the situation is a justification for war. It will just result in other countries re-evaluating their appetite for dollars – downwards.

  • David Wilson


    No country in the developed world has devalued their currency as much as we have. Our “hands-on” approach to government managed economy has driven our currency down by roughly a third, if i am correct. The Euro, however, is quite strong. A problem will occur when all of those foriegn nations who hold our dollars right now (exchanged for their goods) realize that we have been giving them increasingly worthless paper. While this may not necessarily, and most likely will not, lead to war, it will definitely cripple our economy when they drop our currency for the Euro.

  • TanGeng


    Exports and imports are good. It’s trade. It allows the economy to take advantage of relative advantages in production. The answer here is a resounding “YES!” We benefit. Our trade partner benefits.

    Are net exports good? Net exports represent domestic savings that gets invested in a foreign country. The answer here is a qualified “no.” A country that has a strong economy and compelling investment opportunities will attract capital from foreign countries. A country that exports capital has exhausted all investment possibilities at home and now seeks it abroad. But just looking at net exports numbers isn’t enough to rule a good or bad.

    The single most important factor to look at is the rate of investment in an economy. More investment equals a better future for the economy. Other numbers to look at are domestic savings rates and the such.

    The real problems with the falling dollar is that countries that have accepted or held onto dollars or dollar-denominated debts are reconsidering their position. In the past, the Asians and the Persian Gulf states have helped us by importing our inflation. If those states drop the dollar and dollar-denominated debt, they export all that inflation back to us, and the dollar will suffer from hyper-inflation.