Here’s a letter to the Wall Street Journal.
Editor:
The usually astute Joseph Sternberg uncharacteristically feeds some common misperceptions when he writes that “the trade deficit Mr. Trump detests arises in large part because Americans have discovered we can use our reserve-currency status to feed our consumption addiction with cheap borrowing, including from abroad” (“Tariffs and the Truth Behind Trump’s ‘Two Dolls’ Gaffe,” May 15).
First, U.S. trade deficits are not synonymous with American borrowing. When foreigners use their export earnings, say, to buy stock on the NYSE, they cause U.S. trade deficits to rise but without bringing Americans further into debt. Ditto when foreigners choose to hold dollars or to use dollars to conduct international commerce. If dollars held abroad were, as would be plausible, reclassified as an American export of a useful financial service, the measured U.S. trade deficit would instantly fall significantly without effecting any change in real economic activity
Second, the assertion that U.S. trade deficits result from an American “consumption addiction” that must be reined in is both lazy and inaccurate. More than sixty percent of American imports are not consumption goods but, rather, inputs used by American producers. Even more tellingly, compared to when America last ran an annual trade surplus, 1975, the real net worth of the average American household today is 232 percent higher. These facts are practically impossible to square with Mr. Sternberg’s accusation that we Americans consume excessively and must be disciplined into producing more.
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
