Here’s a letter to the editor of Foreign Affairs:
U.S. Trade Representative Robert Lighthizer’s attempt to justify President Trump’s protectionism is filled with fallacies (“How to Make Trade Work for Workers,” July/August 2020). Not the least of these fallacies is his assertion that U.S. trade deficits “must be financed through asset sales.”
The U.S. trade deficit can be “financed” through asset sales, but it need not be, and it very often isn’t. America’s trade deficit rises if foreigners simply hold more U.S. dollars.
This deficit rises also if foreigners launch or expand businesses in America, but – contrary to Mr. Lighthizer’s fear-mongering – with no necessary net transfer of assets from Americans to foreigners. For example, the Dane in Copenhagen who earns dollars by exporting to the U.S. and then spends those dollars in the U.S. on materials to enlarge her factory in Texas causes the U.S. trade deficit to rise but without her or any other foreigner receiving assets from any American.
If the tale Mr. Lighthizer tells about U.S. trade deficits were true, America’s nearly half-century run of annual trade deficits would have by now stripped us Americans of a great deal of our net worth. But the opposite is the case. In inflation-adjusted terms, the net worth of American household and non-profits is today (at the end of 2019) nearly 350 percent higher than it was in 1975, the last year that America ran a trade surplus
This truth cannot be too-often repeated: Seeking information about trade from Trump and his trade triumvirate makes no more sense than seeking information about physics from Road Runner cartoons.
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