Trade Deficits are Not a Problem to be ‘Addressed’

by Don Boudreaux on March 9, 2018

in Balance of Payments, Myths and Fallacies, Trade

Here’s a letter to the Wall Street Journal:

Frank Lavin and Fredrik Erixon wisely counsel the use of trade agreements – as opposed to tariffs – as the best practical and politically feasible means for governments to address trade complaints (“Trade Agreements Are the Answer to Trade Deficits,” March 9).  But these authors unwisely grant the validity of a wholly invalid and pernicious premise that underlies Trump’s trade policies – namely, the belief that U.S. trade deficits are a problem that must be ‘addressed.’

U.S. trade deficits are the result of foreigners investing more in the U.S. than Americans invest abroad.  What about this reality is a problem needing a ‘solution’?

Should we Americans be upset that non-Americans continue to find the American economy to be an especially attractive place to invest and entrust their funds?  Ought we American shareholders regret the increase in our wealth that results from share prices of U.S. firms being raised by buoyant foreign demand for these shares?  Are we U.S. taxpayers made worse off when foreigners join their funds with those of American investors in helping to fund the annual debt piled up by profligate Uncle Sam?  Shall we American citizens fear, rather than celebrate, the new businesses, the factories, the stores, the machines, the R&D, the worker training, and the other capital goods and services made possible on our shores by the net inflows of capital that are recorded as a U.S. trade deficit?

I don’t believe so.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030


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