Home > Uncategorized > Sometimes Anti-Trade means Anti-Export, Too

Sometimes Anti-Trade means Anti-Export, Too

When governments restrict trade, it’s usually in the direction of restricting imports.

The U.S. has had longstanding restrictions on exports of energy products. Here’s a good example of how they are justified, and the harm these restrictions produce:

But most of the pushback comes from certain segments of the business community that fear that diverting U.S. gas into world markets would raise prices for everyone from steel companies to electric utilities. Rep. Edward J. Markey (D-Mass.) has proposed a bill that would prohibit any new LNG export facilities until 2025.

Unlike oil, gas does not trade on a unified world market. Prices in Asia are four times higher than in the United States. Obliging U.S. customers to compete with, say, Chinese customers, would exert upward pressure on U.S. prices.

When a country restricts exports it harms domestic producers to benefit domestic consumers, but overall the losses are greater than the gains.

Exporting gas to China, for example, would drive up domestic U.S. prices of gas, but benefits to both the U.S. and Chinese economies will follow. The obvious benefit to the U.S. is that Chinese buyers would pay to import a U.S. product in dollars.

But that’s the simplest way to look at the transaction. Taken one step further: buying U.S. gas at lower prices than they would otherwise pay helps Chinese consumers, too. Money they otherwise would have spent on higher-priced gas can then go, instead, to consumption of more healthcare, education, or other goods and services.

Some of that spending will also make its way back to the U.S. in the form of students furthering their education or for imports of agricultural products.

Freer trade in energy will benefit both economies. Rep. Markey’s proposal would hurt the U.S. economy and make Chinese consumers worse off, too.

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