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No. No. No. That’s Simply – and Plainly – Incorrect

Here’s a letter to the Wall Street Journal:

After reading my letter in the Wall Street Journal on why U.S. trade deficits do not necessarily imply greater American indebtedness, Steven Crow describes the examples that I use to make my point as all involving “transferring U.S. assets to foreign creditors” (Letters, May 14).

Mr. Crow is mistaken.

Consider my example of BMW building a factory in South Carolina. This factory was created by BMW. Because it did not exist before BMW created it, this factory cannot possibly have been a U.S. asset that was ‘transferred’ to foreigners, be they creditors or otherwise. BMW’s factory in Greer, SC, exists only because BMW conceived of it, financed it, built it, and operated it profitably for the past quarter-century. It is neither an asset that ever belonged to an American nor one whose creation resulted in any further American indebtedness.

What the U.S. supplies in this case (as in countless others) is chiefly the promising economic opportunity – including the relatively free-market economy – that make that investment in South Carolina attractive. We Americans can take pride in this fact. But we play directly and stupidly into the hands of protectionists if we persist in mislabeling all foreign investments in the U.S. as being either increases in American indebtedness or ‘transfers’ of American assets to foreigners.

It’s unfortunate that Mr. Crow – confused, as he is, by misleading terms in accounting identities – contributes to the ignorance that fuels protectionism.

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