Economist Herb Stein famously said of stubborn trade gaps that if something can't go on forever, it will stop. He was counseling patience. Unsustainable trade deficits won't be sustained, he argued, so there was no need to intervene in the economy to fix them. Some 30 years after the country last ran a trade surplus, Americans are tired of waiting for the inevitable. There is growing anger over trade practices--like China's undervalued currency--which are perceived to be unfair, alongside calls to boost export industries. The difficulty is in finding policies that will support exports without harming American households or sparking a trade war.
This becomes less of a hardship once one understands the critical role cities play in export industries, and the ways in which America is under-investing in its metropolitan areas. Businesses that sell stuff all over the world are often geographically concentrated, while those that don't spread out. One obvious reason for this is that goods that can't be shipped can't be traded internationally. Dentists offices can be found in most American neighborhoods, because dentists can only sell their services to people close enough for an office visit. Consequently, dentistry doesn't figure prominently in the trade data. German workers go to German dentists.
Facebook accounts and iPhones are about as ubiquitous as dentist chairs; indeed, you might update your Facebook status on an iPhone while waiting to get your teeth cleaned. But while dentistry is practiced the world over, the Facebooks and Apples of the world concentrate in places like Silicon Valley (or, as we're now learning via Alexis Madrigal, the emerging mini-Silicon Valleys of the South). The important question for the American economy is why these producers, who can sell products anywhere they like, choose to locate in one metropolitan area and, more importantly, just a few miles away from each other. Why isn't Apple headquartered in Topeka? Or Guangdong?
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