… is from page 72 of Anne Krueger’s 2020 book, International Trade: What Everyone Needs to Know:
Moreover, it is often economic to source imports in countries different from major export destinations and there is no reason why bilateral current account balances should matter.….
There are three important reasons why President Trump’s approach is mistaken. First, the trade balance – the difference between exports and imports of commodities – is economically meaningless. If anything, it is the balance on goods and services – the current account balance – that may matter. Second, bilateral trade deficits also mean nothing, and in a well-functioning global economy even if all countries’ current accounts were balanced overall, there would still be bilateral deficits and surpluses.
DBx: Indisputably correct. And yet, the economic phenomena that Trump alleges to constitute a national emergency that justifies his “Liberation Day” tariffs are not only continuing U.S. trade deficits exclusively in goods – excluding trade in services, which are 80 percent of U.S. GDP – but U.S. trade deficits exclusively in goods with individual countries.
Trump’s reasoning is the intellectual equivalent of proclaiming that America is now in the midst of a national emergency caused by a rise in witchcraft or an ominous alignment of Jupiter with Mars.
