Among economics data watchers, a country’s exports enjoy a hallowed status. The ability of producers in country A to sell goods and services to people in other countries is taken as a sign of A’s economic strength, although the underlying metric for economic strength goes unmentioned. In addition, job counters across the spectrum constantly count the number of jobs associated with exports. The more export-related jobs, the better. In a nutshell, exports are intrinsically beneficial—no questions asked.
The problem is that virtually no one, except perhaps for a workaholic, runs their personal economic affairs like this. Let’s consider an example.
Soybean Exports
Countries export those products that, were it not for the exports, would obtain a lower price domestically than they would in the international marketplace. For example, suppose the United States banned the export of soybeans. If the world price of soybeans were, say, $10 per bushel, the U.S. export ban leads to a lower U.S. price, say, $5 per bushel, and an annual production level of, say, 50 million bushels.
Lifting the U.S. ban on soybean exports would cause the U.S. price to rise to the $10 world price. U.S. farmers would increase their soybean production as production deemed uneconomic at $5 becomes economic at $10. In addition, soybean related consumption in the United States would fall as consumption choices that are economic $5 per bushel become uneconomic at $10. Suppose soybean production rises to 60 million bushels and consumption falls to 45 million bushels. The difference between the higher level of production and lower level of consumption, 15 million bushels, would become U.S. soybean exports sold to foreigners at $10 per bushel.
Those who choose to export while importing as little as possible will find themselves ill-clad, ill-housed, ill-fed, and possibly dead in short order.
So, is the additional production of soybeans sold to foreigners intrinsically beneficial to the United States? Hardly. After all, additional production of soybeans is not costless. It means other agricultural products are not being produced; say it’s tomatoes. If the average cost of the additional soybean production in terms of tomatoes is, say, $7.00 per bushel, then the cost of the additional soybeans measured in foregone tomatoes would be $70 million. So Americans have fewer tomatoes worth $70 million as a consequence of soybeans going to foreigners. Where’s the gain?
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