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A Stuff Surplus

EconLib’s June Featured Article is an essay that my colleague Dan Klein wrote but to which I contributed enough that Dan graciously and generously saw fit to include me as a co-author.  In this essay, we warn against being misled by the deeply misleading language that is conventionally used in discussions of the ‘balance of trade.’  One conclusion is that the accounting artifact conventionally called a “trade deficit” could, with as much accuracy and much greater clarity, be described as a “stuff surplus.”  Here are three slices:

Notice that if imports exceed exports, as they have done for decades in the United States, then, on net, more dollars leave the United States by Americans’ purchases of imports than come in by Americans’ sales of exports. Such a situation is termed a current-account deficit, or “trade deficit.” But the terminology could just as well be formulated the other way around, in a framework of husbanding stuff. Then, under the same condition of imports exceeding exports, the focus is on the stuff that, on net, is flowing into the United States. Now we view the exact same world but see a surplus. Instead of looking at matters as the conventional language does, we might call this new view the in-kind account. What in the conventional view is a “trade deficit” is in the in-kind view an “in-kind surplus.”

President Trump promises Americans “good trade deals.” But isn’t it a good trade deal for Americans to get stuff from abroad, to use and enjoy, in an amount larger than the value of the stuff that Americans give up? That is an in-kind surplus! But Trump and others prefer to call it a trade deficit.


Since “deficit” sounds bad, many people think that the “trade deficit” is bad. The thought is foolish but pervasive. And others exploit the folly to argue for government interventions—privileges and unjust protections—that impoverish society on the whole.

When the term “trade deficit” came into being in the late 1940s, it gave politicians something—”the dreaded trade deficit”—to justify their fears of, and attacks on, allegedly dastardly foreigners, as they passed out protections and privileges to favored interest groups. In the 1980s, these foreigners were Japanese; today they are Chinese.

Has humankind benefited from the birth of the “trade deficit” terminology? We suggest the opposite.


“Trade deficit” is one of those language traps that we’ve sadly fallen into. It is defective language that spawns deficient thinking. Only by recognizing the defectiveness of the term “trade deficit” can we hope to reduce the damage.

Thinking for yourself means not letting yourself be brow-beaten by language. When you hear people use “trade deficit,” recognize its defectiveness, and disdain it accordingly.

(Dan and I thank – in addition to those we thank in the acknowledgements – David and Rena Henderson, Lauren Landsburg, and Amy Willis for their expert assistance in editing and producing the published version of our essay.)


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