Here’s a letter that I sent last week to the New York Times.
Editor:
Oren Cass – conversing with Matthew Rose, Jason Furman, Rebecca Patterson, and Lawrence Summers – expressed support for Pres. Trump’s ten percent global tariff because, as he asserts, “the United States has been running large trade deficits that have weakened domestic manufacturing” (“‘I Hope I Am Wrong, but I Am Pretty Pessimistic’: Four Economists Dissect Trump’s Tariffs,” April 11).
The evidence refutes Mr. Cass’s assertion. As Scott Lincicome notes, the total stock of foreign direct investment (FDI) in U.S.-based manufacturing facilities reached $2.22 trillion in 2023. Further, as the Commerce department reported last Fall, “since 2006, the United States has been the largest recipient of foreign direct investment (FDI) in the world,” with “both the inward FDI position in the U.S. and new FDI … concentrated in manufacturing.” While inward FDI increases U.S. trade deficits, a great deal of it clearly adds to America’s manufacturing capital stock – helping to explain both why U.S. manufacturing capacity today is only 3% below the peak it hit just as the economy crashed in 2008, and 166% higher than it was in 1975, the last year that the U.S. ran an annual trade surplus, and why the U.S. leads the world in value-added per manufacturing worker.
Neither economic theory nor evidence comports with Mr. Cass’s claim that U.S. trade deficits have harmed U.S. manufacturing. Quite the opposite, in fact.
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
