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Monumental Ignorance of Trade

Here’s a letter to the Wall Street Journal:


Today’s report “EU’s High Trade Surplus With the U.S. Poses Risk to 2018 Tariff Truce” is the latest revelation that Pres. Trump’s trade policy is a stew of staggering economic ignorance. Here’s a list of only some of the Trump administration’s fallacious notions:

– The administration’s focus on the U.S. ‘goods deficit’ with the E.U. reveals the false belief that trade in services is irrelevant, and that the only relevant trade is trade in goods. Yet in reality service-sector outputs account for nearly 80 percent of U.S. GDP and 34 percent of U.S. exports.* It makes no more sense for administration officials, when assessing U.S. economic performance, to ignore Americans’ trade in services than it would for, say, Apple officials, when assessing that company’s performance, to ignore Apple’s trade in smartphones.

– The administration’s focus on the U.S. trade deficit with the E.U. reveals the false belief that trade between any two countries should be ‘balanced.’ But in truth there’s no more reason to expect that in our world of nearly 200 countries each country will sell to any other country the same amount that it buys from that other country than there is to expect that, say, each household will sell to each supermarket the same amount that it buys from that supermarket.

– The administration’s phobia of U.S. trade deficits reveals the false belief that these deficits are both a symptom of poor trade policy and a cause of economic harm. In fact, however, the U.S. trade deficit exists only because global investors choose to invest more in the U.S. than U.S. investors choose to invest abroad. We Americans should be pleased rather than perturbed that investors find our economy to be relatively attractive. And we also should recognize that investments made in America by foreigners help our economy to grow no less than do investments made in America by Americans.

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

* Calculated from these two tables: here, and here.


By the way, reading this Wall Street Journal report should alone suffice to cure anyone of the delusion that Trump differs from genuine free traders only in his methods and not in his ultimate goals. The outcomes for which Trump is bargaining are outcomes that, to the extent that they are achieved, will make us Americans less rather than more prosperous.