Rep. Rosa DeLauro (“Re-Exports or Not, We Have a Trade Problem,” Letters, Feb. 27) restates a common fallacy “Trade deficits suppress demand” and have adverse effects on families and communities.
Trade deficits do not reflect deficit demand nor do they reduce demand for GDP. One of the most common regularities of the business cycle is that trade deficits are largest when unemployment is relatively low and excess capacity is smallest, hardly conditions characterizing deficit demand. Trade deficits are smallest when demand for imports is weak. This occurs when unemployment is relatively high or demand for GDP is weak. In no sense is it the case that trade deficits reflect a weak economy. If anything, the opposite is true.
John A. Tatom
Richard Epstein brilliantly explains why Trump is wrong about trade. (HT Warren Smith) A slice:
Ideally, of course, all nations should follow the same policy, but often, for a variety of protectionist reasons, many nations try to prop up exports with subsidies and drive down imports with tariffs or quantitative restrictions. The hard question is how to improve the position for the United States in this second-best world. Trump is keenly aware that we often face tariffs and taxes overseas, while foreign goods come into this country virtually free. But, notwithstanding his distaste for this practice, there is a huge virtue in adopting a strict policy of non-retaliation that seeks to lift tariff barriers overseas without raising tariffs at home. The subsidies that foreign governments confer upon their export industries redound in part to American buyers, who in turn increase their levels of consumption, or reduce the costs of the goods that they make for sale in both domestic and export markets.