Here’s a letter to the Wall Street Journal:
You report that America’s “Goods deficit with China hit record $375.2 billion” (“U.S. Trade Deficit Grew to $566 Billion in 2017, Its Widest Mark in Nine Years,” Feb. 6). Unfortunately, this report is inadvertently misleading – and misleading in a way that fuels destructive protectionist sentiment.
First, in our world of nearly 200 countries, one country’s trade deficit with another country is as meaningless as is one individual’s trade deficit with another individual. For the same reason that absolutely no relevant information about my economic health is conveyed by knowledge of the fact that I have a large trade deficit with my plumber (who is one of many people with whom I economically interact), absolutely no relevant information about America’s economic health is conveyed by knowledge of the fact that America has a large trade deficit with China (which is one of many countries with which Americans economically interact).
Second, because only 20 percent of the U.S. economy is goods-based while at least half of China’s economy is goods-based, it’s unsurprising that we Americans buy more goods from the Chinese than than they buy from us. (Equally unsurprising, by the way, is the reality that the Chinese buy more services from us than we buy from them.) More fundamentally, because services are every bit as economically relevant as are goods, reporting on the U.S. “goods deficit with China” (or with the world, for that matter) makes no more sense than does reporting on, say, the U.S. “things-that-are-blue deficit” with China. The dollar value of blue things that we Americans buy from the Chinese might well be greater than is the dollar value of blue things that the Chinese buy from us, but this factoid is obviously of zero relevance. Equally irrelevant – and for the same reason – is the factoid that the dollar value of goods that we buy from the Chinese is greater than is the dollar value of goods that the Chinese buy from us.
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