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Hooray for America’s Trade Deficit

The Financial Times published this letter of mine yesterday:

From Mr Donald J. Boudreaux.

Pat Buchanan’s hostility to free trade (Letters, March 5) reflects his
misunderstanding of fundamental concepts. He complains that “since
Nafta . . . we have run $5,000bn in trade deficits”. For Mr Buchanan,
this fact is clear evidence of the dangers of freer trade. But let us
reword his complaint: “Since Nafta, we have run $5,000bn in investment surpluses.” Putting it like this – which is simply another way of reporting the fact that Mr Buchanan finds so troubling – reveals that, since Nafta, $5,000bn worth of capital has flowed into the US.

This capital helped to create and modernise many US companies, to fund research and development, to train workers, and to ease the burden imposed on Americans by Uncle Sam’s profligacy. Does Mr Buchanan really lament this capital inflow?

It is worth pointing out, too, that this inflow of capital is precisely the opposite of what Ross “Giant Sucking Sound” Perot predicted would happen if Nafta were passed.

Donald J. Boudreaux,
Department of Economics,
George Mason University,
Fairfax, VA 22030, US