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I Too Often Tilt at these Windmills

Here’s a letter to the Washington Post:

Neil Bush deserves applause for making an often-ignored point about the trade deficit: “If we assume a GDP of $1,000, a 2 percent trade deficit would mean someone had sold us $20 more in goods than we sold to them. And we would have received quality merchandise for that $20” (“The difference between Don Quixote and Donald Trump,” August 2).

Yes! People typically forget that the imports that make up the U.S. trade deficit are, like all American imports, goods and services that Americans voluntarily purchase – meaning, goods and services each of which is judged by its American buyer to be worth more than the money paid for it.

Mr. Bush’s powerful point would have been even stronger if he’d also noted that when we run a trade deficit we also get investment funds from abroad. In addition to being a compliment paid by non-Americans to the American economy, these investments fuel economic growth on our shores through the likes of the building and modernizing of factories, funding research and development, and even lightening the burden that will fall on future American taxpayers who will have to repay the debt created today buy Uncle Sam’s excessive budget deficits.

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