I think Stephen Gordon gets trade wrong

Stephen Gordon writes about trade in the Globe and Mail:

[T]he [Canadian] Conservatives are selling trade agreements with the European Union and India...as a way of increasing Canadian exports. 

[But t]he real benefit to international trade is the opportunity to obtain goods more cheaply than by producing them domestically. The proper way to view exports is as a cost: in an ideal world, foreigners would provide us with an infinite amount of imports for free.

It seems to me that this is misleading and incomplete. Here's why.

The "ideal world", in which foreigners provide us with infinite free imports, is impossible. In the real world, imports must always be paid for, either today or tomorrow. We pay for them with exports - either current exports or future exports. But pay we must.

Suppose I increase imports by one dollar today without increasing exports. Am I better off? According to Gordon, yes I am. But in reality it is not clear. Because the way I pay for that dollar of imports - since I don't export anything in return - is with a financial asset. I give one dollar of stocks, or bonds, or real estate, or collectible trading cards, to the foreigner who gave me the dollar of imports. 

The foreigner now holds a claim on my future output. Someday I must give the foreigner some real good, in order to pay back my debt. And the foreigner will charge me some interest, so I end up exporting more tomorrow than I imported today. 

Do I come out ahead or behind? It depends on the amount of interest, and on how much I value future consumption vs. present consumption. If I value future consumption very highly, and if the interest rate is very high, I should boost exports today, rather than imports. Yes, as Gordon says, these exports are a cost; but they are an investment, not a loss. This difference makes all the difference. It is perfectly reasonable to want to boost exports if you care a lot about the future.

OK, so that's the first point. Here's the second. Gordon says "The real benefit to international trade is the opportunity to obtain goods more cheaply than by producing them domestically." But that is not the only benefit of trade, even in the simple Ricardian model. Trade also allows countries to specialize in what they do best; some of the increased consumption from trade comes from increased domestic production, not from imports. In some cases, this effect can dominate. (Also, just to nitpick, in a less simple model of trade - Krugman's New Trade theory - trade doesn't just decrease price, it increases variety.)

So to say that the gains from trade come from cheap imports and not from increased domestic production is also misleading. A lot of the gains from trade come from increased domestic production. And exports are a way of getting future imports. The Canadian Conservatives are not, in this one case at least, misleading the Canadian people. And I think Stephen Gordon is oversimplifying the case for trade in a way that - I am guessing - is unlikely to resonate with Canadian voters.