Here’s a letter to the Wall Street Journal.
Editor:
Joseph Sternberg’s exposé of the fallacies that infect Stephen Miran’s heterodox (to put it politely) theory of the balance of payments earns a grade of 99 out of 100 (“The Defunct Economist Who Shapes Trump’s Trade Policy,” August 21). I deduct one point only because of this sentence about U.S. trade deficits: “These capital inflows, which enrich the U.S., also allow America to run trade deficits that it can finance relatively cheaply.”
These capital inflows do indeed enrich the U.S., but it’s inaccurate to suggest that the resulting trade deficits require American financing. They don’t. Most of the dollars that foreigners invest here put no Americans in debt, reduce no American’s net asset holdings, and require no American to cover any of the foreigners’ investment losses. Instead, as Mr. Sternberg himself correctly observes, “the U.S. is an engine of productivity growth and attracts investment to match.” What America supplies to encourage U.S. trade deficits isn’t financing but, rather, this very attractiveness – an attractiveness that arises naturally whenever and insofar as property rights are secure, taxes are low, and markets remain free and open.
How much of this attractiveness will be dimmed by today’s bipartisan economic folly remains to be seen. But this much is certain: Because his protectionism raises taxes and makes American markets less free and open, Mr. Trump will get his wished-for reduction in U.S. trade deficits – and we Americans will pay the price in the form of lowered living standards.
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
