Attention to Trade Deficit Disorder

As most of you know by now, President Trump has been obsessed with trade for a long time.  I already wrote about Trump's terrible tariffs a few months ago, but today I'm going to take some time to challenge the notion that trade deficits are a bad thing.

Like many of you, I first learned about the concept of trade deficits during the 1980s.  It was during a time when Japan was ascendant and lots of folks in America had xenophobic fears about Japanese economic dominance.  Everyone seemed to have a Sony Walkman in those days, it was becoming clear the Honda and Toyota were making far superior cars than Ford and GM, and Japanese companies were buying American landmarks like RockeFeller Center.  On the nightly news we started to hear about the problem of our large Trade Deficit with Japan.  Americans were buying far more Japanese products than the Japanese were buying American products, and this was widely seen as a blow to American pride.

At the time, I largely bought this narrative.  I'd like to think that I did not have xenophobic feelings about Japan back then, but I was concerned that this trade deficit was bad for the American economy.  I'm almost a little bit embarrassed to admit it now, but my feelings about the trade deficit back then were similar to the way this guy feels about trade deficits right now.

*** I was trying to embed a 28-second clip of Donald Trump talking about trade deficits, but every time I look at the published blog post, it does not seem to be working.  Please click on the "this guy" link in the paragraph above to view the video clip. ***

However, unlike some people, my brain isn't permanently stuck in a 1980's mindset, and I know better now.  Unlike what Trump said in the video above, a trade deficit does not represent our nation losing wealth.  Sure, our country is sending a lot of money to other countries, but we are getting a lot of products back in return.  In fact, we are getting more products back in return that an other nation.  We are getting all these products from other countries, because our nation has enough money to buy all these products.  In other words, we have a trade deficit because our nation is rich.  We don't have a trade deficit, we have a wealth surplus.

OK, I guess by the technical definition of a trade deficit, we do have a trade deficit, but that should be a seen as a sign of our nation's wealth, rather than a cause for despair.  We are still by far the richest nation in the world, and in a global economy, the richest nation in the world is always going to have a trade deficit.

Consider a very wealthy family with lots of expensive possessions like jewels, cars, private planes, and yachts.  This wealth family sent lots of money to jewelers, car dealers,  and the people who sell yachts, and planes, buy nobody would every suggest that the wealthy family has a "trade deficit" with merchants that sold them the jewels, cars, planes, and yachts. 

Well, the United States is like the wealthy family of the world.  We are buy lots products that are produced at a low cost in sweatshops in other countries.  We certainly have a trade deficit with those countries, but would you rather be the country that buys stuff made in sweatshops, or the country that makes things in sweatshops.

Now, I'm not trying to say that sweatshops in other countries are a good thing, and that we shouldn't pressure other countries to improve their labor practices.  I'm also not trying to say that our country should not strive to make products and services that other countries will want to buy.  I'm just pointing out that it is inevitable that a country as wealthy as ours would have a trade deficit, and we shouldn't act like the sky is falling when our politicians rail about it.  We've got too many real problems to deal with in our country to waste time worrying about a trade deficit which is simply a by-product of our nations wealth.

Rich