The point is not to repeat the important truth that the trade deficit corresponds to the capital-account surplus. Rather, the point is that the whole conventional framework assumes that the goal of international trade is to husband money rather than real goods and services.
Maybe that framework stems from the government’s basic instinct and natural interest in finding the dollars and taking a portion of them. After all, taxes are paid in dollars, not in stuff!
It comes down to a choice between two perspectives, each corresponding to what will be given a positive sign and what will be given a negative sign — the money or the stuff? The Nobel economist Thomas Schelling noted that there is “no significance, other than custom, in the choice of sign.” Had the convention developed differently, what is now called a “trade deficit” could have been called a “trade surplus.”
The next time you hear President Trump inveigh about our “trade deficit” with China, say to yourself: We have a stuff surplus with China — wording that sounds much less ominous than a “trade deficit with China” and that is therefore less likely to fuel support for unwise protectionist measures.
In other words, even though the Trump administration seems bent on “bringing back” manufacturing jobs to the United States, most Americans recognize that service sector jobs have already made America great.
You’d never guess it from all the political rhetoric, but service sector jobs have always been a major factor in America’s success.
As I explain in my new book, Crushing Capitalism, service jobs have accounted for a larger share of the US labor force than heavy industry since 1840, and a larger share than agriculture since the early 1900s. Similarly, the service sector’s share of total output exceeded heavy industry’s share during most of US history, with the only exception being a brief period around 1890.
Do you think the markets are trying to tell President Trump something? Stocks and the dollar rose Tuesday after word leaked that Treasury Secretary Scott Bessent told a private investor conference that he expected trade tensions between the U.S. and China to ease soon.
The main equity indexes regained most of their losses from Monday after various media sources confirmed the Treasury secretary’s optimism that both China and the U.S. don’t want the current all-out trade war to continue. He also reportedly said Mr. Trump’s goal in imposing 145% tariffs on imports from China wasn’t to totally decouple the two economies.
If Mr. Bessent knows what Mr. Trump’s real China and trade strategies are, everyone would love to hear it because so far it looks like ad hoc improvisation. But we—and the markets—will take whatever good news we can get these days. So would businesses across the country that are freezing investment or not hiring as they try to figure out what will happen when Mr. Trump’s 90-day pause on his highest non-China tariffs ends.
Among those who’d like to know are the 800 or so Volvo employees at three different U.S. plants that will be laid off in the next 90 days. They include 250-350 workers at a Mack Truck plant in Macungie, Pa.; 250-350 at a Volvo truck plant in Dublin, Va.; and 50-100 at a Volvo plant in Hagerstown, Md., that makes engines and transmissions for both brands.
The company explained that it had to align its production with falling truck orders that “continue to be negatively affected by market uncertainty about freight rates and demand, possible regulatory changes, and the impact of tariffs.” We hear similar comments about uncertainty everywhere.
Phil Gramm and Donald Boudreaux write persuasively about the harms of tariffs (“Trump’s Tariffs Are as Bad as Bidenomics,” op-ed, April 15). Yet they missed an opportunity to correct another mistake. Tariff proponents often contend that tariffs were the major source of revenue for the federal government during the 19th century. What they neglect to mention is that the federal government did next to nothing compared with what it does today.
Consider the top five budget items Congress spends money on each year. Social Security wasn’t signed into law until 1935, interest payments on the national debt as well as defense spending were trivial compared with present levels, and Medicare and Medicaid wouldn’t appear until 1965. These five items alone account for nearly $5 trillion of the total $7 trillion that Congress is projected to spend this year.
It’s easy to pay for the government when the government does few things.
David Hebert
American Inst. for Economic Research
Mohamed Moutii is correct: “Congress must take back control over tariffs.” A slice:
Congress has tried to push back, but with little success. Speaker Mike Johnson has blocked House votes to end the emergency declarations that underpin Trump’s tariffs on Canada. Bills to restore congressional oversight have stalled. Any serious effort would likely face a Trump veto, leaving lawmakers paralyzed and the executive unchecked.
This stalemate points to a broader constitutional crisis: the steady erosion of congressional authority in favor of unchecked presidential power. What began as a practical delegation to simplify trade negotiations has become a blank check for protectionism. And the fallout isn’t just legal — it’s economic.
Tariffs imposed without oversight drive up prices on everything from electronics to clothing, burdening American consumers and businesses. They rattle investors, disrupt global supply chains, and strain ties with key allies already on edge.
Matthew Blakey explains that “if the U.S. is to lead the future, it won’t be by protecting the past.” Two slices:
Yet today there is a mounting temptation—especially from politicians and policymakers— to turn back the clock. From calls to “bring back” American manufacturing to government subsidies for outdated industries, the pull of nostalgia to relive the past is highly detrimental to US innovation. Schumpeter warned against this very instinct. The promise of capitalism was never about preservation, but progress. Rather than pouring valuable resources into resurrecting obsolete sectors, we should focus on removing the barriers to allow space for the next wave of advancements.
…..
It’s often forgotten that creative destruction is not merely an economic process—it’s a strategic advantage. Countries that suppress disruption in favor of preservation or stability often consign themselves to years of stagnation. Much of Europe, for example, has spent decades prioritizing industrial stability, rigid labor protections, and regulatory caution over economic dynamism. In a September 2024 article for the International Monetary Fund, Cerdeiro, Hong, and Kammer observe that the productivity and market valuations of U.S.-listed companies far outpace their European counterparts—attributing the gap to America’s embrace of innovation.
Daniel Hannan makes the case for free trade in six simple points. A slice:
A trade deficit must be matched by a capital surplus, and vice versa. A foreigner who holds sterling can ultimately do one of only two things with it: buy British exports, or buy assets in Britain. Politicians like to celebrate both inward investment and export successes, and both are indeed good things to the extent that they show a global economy operating properly.
But, by mathematical logic, the more you have of one, the less you will have of the other. Donald Trump’s failure to grasp this point is about to plunge the US into recession.
Jeff Luse reports that Trump’s tariffs surely please many radical environmentalists. A slice:
President Donald Trump’s trade policies have disrupted every sector of the economy, including energy. A nuclear power plant project in Michigan could be the latest victim of the president’s tariffs.
