Imports are not a dirty word

What’s the most “positive” word uttered by politicians on trade? Exports.

What’s the most “negative” word uttered by politicians on trade? Deficit.

More specifically, when many politicians talk about trade, they often promote exports as an inherently good thing, and decry the US trade deficit as evidence that other countries are taking advantage of us.

But that characterization leads the general public to suspect that imports are a problem, and somehow Americans would be better off if we were to import fewer goods and services from abroad. Before we rush to a conclusion, let’s take a look at what we import.

We import products we need to make other products

Half of the goods we import are orders from U.S. companies (that is, manufacturers) as the inputs they need to operate their own production processes in the form of intermediate components or raw materials.

The U.S. Department of Commerce provides a useful way to look at imports by classifying them by their end use.

In 2015, 48 percent of U.S. imports consisted of “capital goods” (machinery and machine tools, semiconductors, parts, equipment, etc.) and “industrial supplies” (chemicals, fuels, lumber, plastics, metals, etc.). More than half of imports fall into these two categories if we include imported auto parts and engines (i.e., not finished vehicles) to the capital goods total.

Firm decisions

In each transaction, firms must determine the most appropriate inputs, ingredients, and other supplies to make their products, taking into account form, quality, price and a dozen other criteria their suppliers must meet. There may be a variety of reasons they choose to import those supplies. The material or equipment they need might not be readily available from a domestic source, or perhaps it’s not available in sufficient quantity, or isn’t made exactly to the right specification.

Because the firm (which employs U.S. workers in U.S. factories) has access to their choice of inputs, its finished products are a better value for consumers and that usually translates to greater sales and more secure jobs for the firm’s employees.

Imports support jobs

That’s something you don’t hear politicians say. Increased demand for industrial inputs – whether imported or not – is a sign of economic strength, even if it leads to an increase in the “trade deficit.”

Because small and large producers alike can make appropriate choices about their inputs – and use imported inputs as needed – they are more competitive in world markets. Conversely, if imported goods became artificially more expensive because of a tariff, firms risk being made less competitive; they would sell fewer finished products, and ultimately employ fewer workers.

Imports support our lifestyle

There is a lot to like about the other half of what we import, too. Imported consumer goods, from electronics to clothing to jewelry, give us greater buying power and a broader array from which to choose. And don’t forget imported food, which means fresh avocados for your big-game guacamole as well as delicacies from around the world at your local store.

Sure, it’s good when American companies export goods and services to the world. But imports make many American-made products more competitive as well as enriching our lives as consumers – they are part of the secret sauce of what makes our economy work so well.

Additional Reading: Chapter 1 of Dartmouth economist Doug Irwin’s book, Free Trade Under Fire