… is from page 713 Paul Heyne’s excellent Winter 1983/84 Cato Journal article, “Do Trade Deficits Matter?”:
Why should a [trade] deficit be regarded in the first place as evidence of economic ill health? We could probably all agree that some events which produce deficits are evidence of matters gone wrong. Short-term borrowing to finance grain imports made necessary by a harvest failure, for example, would push a nation’s balance of trade toward deficit as conventionally defined. But the problem here is the harvest failure, not the deficit in the trade balance, and obsession with the deficit that results from the harvest failure obscures the problem.
Not only is the deficit a mere symptom of the problem, it is also a symptom of the problem’s resolution. And that’s extremely important to keep in mind. The deficit is evidence that funds were made available with which to purchase grain after the harvest failure, and thus to ward off starvation. Isn’t the deficit, viewed in this larger perspective, something to welcome rather than to lament? Lamentation is appropriate with regard to the harvest failure; but the deficit is something for which the nation’s citizens could properly be grateful.
DBx: And of course in many cases trade deficits are symptoms of things going right – for example, the investment climate in the home country becoming more attractive and, hence, attracting more foreign investment. The resulting trade deficit then further fuels economic improvement in the home country.