Despite what you may have heard from politicians and journalists, trade deficits are not a bad thing… In fact, they almost always indicate a healthy economy.
Some people (including a number of our civil leaders) believe that the United States’ trade deficit is a bad thing. They think that it means that other countries are abusing us. This is just wrong – and economically ignorant. It is the same as saying that a deficit of sugar in your diet is a bad thing. Just wrong.
By definition, a trade deficit is when one country’s people and businesses are buyingmore goods than they are selling to other countries. Rather than indicating negativity or poverty, this highlights that the people and companies in the United States have the wealth to be able to buy more stuff than the poorer people from other countries are able and willing to buy from us. This is reflective of a healthy economic circumstance.
Actually, throughout history when the US has had a trade surplus it generally has been in economic recession or depression. Let’s take a look at what a trade deficit actually is, and why trying to eliminate our trade deficit is misleading and ultimately based in ignorance.
Ultimately, basic economics shows that the amount of money flowing back and forth between two countries has to be the same. What changes is the form of that money: capital vs. consumable goods. When the United States has a trade deficit it means that the United States people and companies as a whole are buying more consumable goods from a country than that country is buying from us. That country in turn is using those dollars
to make capital or other investments in the US – rather than buying consumable goods from US companies. China is a great example of this. The reason that we have a trade deficit with China is because we have a lot of wealth and we are willing to spend money on consumable goods. By allowing this deficit, we are in fact just letting Americans enjoy what they want to enjoy, creating a high living standard. The Chinese, on the other
hand, are willing to forego the current enjoyment of things so that they can invest in their future – by buying US bonds, or investing in US companies (like automobile plants in Tennessee which provides jobs and economic growth to the US). Those in the US have decided – one by one – that they want to buy stuff to make them happy. Let’s let them do that.
Furthermore, a trade deficit is not a US Government deficit, or debt, or anything of the kind. There is no such thing as a “country’s” deficit. It is not the United States government but rather individual Americans and individual American companies that are choosing to spend their money on consumable goods. The deficit just recognizes that in the moment, US individuals and companies are choosing, transaction by transaction, to
part with dollars in exchange for stuff that they would rather have. This is an individual choice that is reflective of individual wealth and ability to spend on consumable goods. We must reject the thinking of some in Congress and elsewhere who are trying to stop US people from buying more stuff from China and other countries. This ignorant recommendation is, by definition, hurting Americans and limiting their freedom to enjoy the things they choose.
An understanding of basic economics shows that trade deficits are a reflection of wealth and success and anyone who denies that doesn’t understand the concepts of trade and deficits.
