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Cato’s Dan Griswold amasses further evidence [2] against the myth — a myth piled higher than the dung in King Augeas’s stables — that the U.S. trade deficit is a drag on American economic growth, or that this "deficit" is necessarily evidence of poor American economic performance:
[T]here is no evidence that an expanding current account deficit is
associated with slower economic growth. In fact, data show the opposite
correlation:
- In those years since 1980 in which the current account deficit
actually shrank as a share of GDP, real GDP growth averaged 1.9 percent. - In those years in which the deficit grew modestly, between 0.0 and 0.5 percent, GDP growth averaged 3.0 percent.
- And in those years in which the current account deficit expanded by
more than 0.5 percent of GDP, real GDP growth grew by an average of 4.1
percent.
In other words, economic growth has been more than twice as fast, on
average, in years in which the current account deficit grew sharply
compared to those years in which it actually declined. If trade
deficits drag down growth, somebody forgot to tell the economy.