Here’s a letter to MarketPlace.
Editor:
Sabri Ben-Achour plausibly identifies U.S. government budget deficits as contributing significantly to U.S. trade deficits (“The cause of the U.S. trade deficit might not be what you think,” October 5). Foreigners’ annual net purchases of U.S. Treasuries averaged just under half the annual U.S. trade deficit over the ten years from 2016 through 2025. It’s quite possible, as Mr. Ben-Achour’s report suggests, that had the U.S. government’s demand for borrowed funds been lower, more dollars would instead have been spent on U.S. exports, resulting in smaller U.S. trade deficits.
But maybe not.
Insofar as U.S. government borrowing diverts resources away from productive investments and into wasteful spending, it both weakens America’s economy and raises the likelihood of future tax hikes or inflation. As our economy weakens – and as future tax hikes or inflation become more likely – our economy becomes a less attractive place for both Americans and foreigners to invest.
We cannot know how much more foreign direct investment and private portfolio investment would have been made in the U.S. economy had Washington been more fiscally responsible. Perhaps with greater fiscal responsibility over the past several years, U.S. trade deficits would have been higher as even more private investment funds poured in.
Sincerely,
Donald J. Boudreaux
Professor of Economics
andMartha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
