The Trade-Deficit Zombie Continues Its Haunting Ways

by Don Boudreaux on December 6, 2016

in Balance of Payments, Myths and Fallacies, Trade

Here’s a letter to the Wall Street Journal:

You report that “[t]he U.S. trade deficit widened sharply in October as exports weakened following a summer surge, and imports jumped, setting up a likely drag on overall economic growth in the final months of 2016” (“U.S. Trade Deficit Widened Sharply in October,” Dec. 6).

This reporting is sub-par.

Because about half of American imports are raw materials or intermediate goods used by U.S.-based producers, why does a jump in imports necessarily portend slower economic growth?  This jump in imports might well fuel faster economic growth or signify producer optimism about future sales.  Also, because a rising trade deficit means more capital flowing into the American economy – and because more capital flowing into the American economy generally promotes economic growth – why is your reporter so quick to conclude that an increase in the trade deficit is “setting up a likely drag on overall economic growth”?

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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