… is from Robert McGee’s June 1989 review, in The Freeman, of Richard McKenzie’s 1988 book, The American Job Machine:
The trade deficit is measured by the difference between imports and exports, so a decline in exports will increase the trade deficit if imports remain constant. Yet exports may decline because an expanding internal economy has siphoned domestically produced goods away from world markets. American producers are selling to other Americans rather than to foreigners. So a trade deficit can be caused by an expanding domestic economy – which is a sign of economic health rather than sickness.
DBx: Yep. And as regular readers of this blog know, there are many other reasons why trade deficits – or, more generally, current-account deficits – are not necessarily symptoms of economic weakness at home. The very opposite is very often the case. Nor are such “deficits” ever symptoms of “unfair” trade practices abroad. Nor are such “deficits” sources of future economic woes.
The main function served by trade deficits is to allow protectionists to spook the general public into a willingness to be preyed upon by politically powerful domestic producers.
