EC The U.S. Has A Huge Merchandise Surplus With China (And That’s Okay)

I have a huge trade imbalance with Wal-Mart.

Huge.

I spend hundreds of dollars on groceries and other items every month, but never—not once—has Wal-Mart ever bought something from me. Maybe I should stop shopping at Wal-Mart as a way of sticking it to them.

Or not.

My trade imbalance with Wal-Mart makes me better off.

I actually benefit a great deal from my trade imbalance with Wal-Mart. Generally speaking, my groceries are cheaper than at other stores I could shop at, and the wide selection of home, auto, electronic, and other valuables makes getting what I need easy, even when the contents of my list are diverse.

My trade imbalance with Wal-Mart makes me better off, not in spite of the fact that they take my money, but because they take my money. I can’t eat dollar bills, after all, nor can I use them to keep me warm or maintain my car. Hoarding money (by, say, stuffing it under my mattress) does me no good. But the goods I can get by giving it to Wal-Mart can feed me, keep me warm, and ensure that my car runs as it should.

You might think it’s silly to think of my economic relationship with Wal-Mart as a trade imbalance, and you’d be right. Assuming you’re among the one-in-three Americans that remains skeptical of international trade, you’d probably even agree that it would be bizarre to think of trade between states—Idaho and California, for example—in terms of deficits and surpluses. (Which saves us from having to calculate the ratio of potatoes to computer chips, am I right?). But here’s an interesting principle hidden in our examples: borders are economically irrelevant to trade. Put differently, the same rules of economics apply equally to trade across international borders as to trade between individuals and across state borders.

Trade Goes Full-Circle

Let’s go back to my trade imbalance with Wal-Mart: when I buy from Wal-Mart, I’m not losing by giving up my dollars in exchange for goods. If anything, I’m winning. After all, in a normal trade situation, each side has to feel as though they’re walking away better than when they started, or the trade won’t take place at all.