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Omigosh! Foreigners Are Investing More In America!

Posted By Don Boudreaux On October 10, 2011 @ 10:09 am In Balance of Payments,Myths and Fallacies,Seen and Unseen,Trade | Comments Disabled

Here’s a letter to the Baltimore Sun:

Jim Case argues that NAFTA has been “bad” for the U.S. economy because, since that free(r)-trade pact first took effect in 1994, America’s trade deficits with both Canada and Mexico have increased (Letters [1], Oct. 10).

Is Mr. Case aware that his evidence for the alleged failure of NAFTA is that Canadians and Mexicans are now investing more in the United States?  (Such increased investment is exactly what a rising U.S. trade deficit means: foreigners invest more of their dollars here rather than cash these dollars out immediately on purchases of U.S. exports.)  Does Mr. Case realize that the rise in the U.S. trade deficit under NAFTA is exactly the opposite of what protectionists, such as Ross Perot, warned would happen if NAFTA passed, namely, that NAFTA would shift so much investment from high-wage America to, especially, low-wage Mexico that we’d be deafened by a “giant sucking sound” of investment dollars being inhaled by factories and plants across the border?

Protectionists simply cannot be taken seriously as long as they stubbornly cling to the inexcusably backwards myth that a rising U.S. trade deficit is a symptom of the failure of freer trade.

Sincerely,
Donald J. Boudreaux

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