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An Open Letter to Jeff Ferry

Mr. Jeff Ferry
CPA
Washington, DC

Mr. Ferry:

You write:

But what if you don’t have to work? What if international lenders will lend you the money so you can buy as many imports as you like? Then if a nation has an absolute disadvantage in all major goods, it can run a persistent trade deficit, lose all its industries, and build up debts for years.

This is the U.S. plight. In the age of hyperglobalization, where multinational corporations are determined to produce in low-cost, low-wage nations, and sell those products in high-wage nations, the U.S., one of the highest-income nations in the world, may have an absolute advantage in almost nothing. The U.S. may have a theoretical comparative advantage in certain goods, and we can calculate it mathematically, but this is entirely irrelevant because foreign nations will take our paper (Treasury bonds or equities) instead of demanding goods.

We have had 48 consecutive years of trade deficit so far, reaching close to a trillion dollars a year now. But it could go on for another 48 years, and double to say $2 trillion, leading to further deindustrialization and job loss.

What world do you have in mind? Not, it seems, the actual one. Here are some facts that are either impossible or very difficult to square with your portrait of modern America:

– The inflation-adjusted value of annual American exports has risen rather consistently over the past 75 years, and accelerated in the mid-1980s. It is today at an all-time high.

– The inflation-adjusted value of American industrial output has risen rather consistently over the past century, without slowing when annual U.S. trade deficits began in the mid-1970s or when China joined the WTO in 2001. The value of this output reached its all-time high in September of 2022, and is today only a minuscule fraction below this peak.

– The inflation-adjusted value of American industrial capacity has risen rather steadily over the past nearly 60 years, without slowing when annual U.S. trade deficits began in the mid-1970s. It reached its all-time high in December 2016, and is today nearly equal to that peak value.

The U.S. Department of Commerce reported in April that “the United States has been ranked as the top destination for foreign direct investment for the 12th consecutive year.”

– Except for the spike during covid, the unemployment rate has been near half-century lows for the past six years.

– The inflation-adjusted value of the net worth of all U.S. households is today 113 percent higher than when China joined the WTO in 2001 and 220 percent higher than when NAFTA took effect in 1994. It is today at an all-time high.*

Not one of these facts – and certainly not the collection of them – is consistent with your false tale of woe about American trade.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

* I adjusted these nominal values on household net worth for inflation by using this inflation adjuster.

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