Wednesday, June 19, 2019

on trade deficits...

The trade deficit is in one category, goods and services. The other major category in this realm-- the "balance of payments"-- is investment. So, our trade deficit is mostly (or more than) offset by an investment surplus. So, if one complains about the TD, they're also complaining about the IS for some reason.

The trade deficit is an aggregate measure of voluntary mutually beneficial trades that happen to be across national/political boundaries. If the trade deficit is really a problem, we should punish individuals who chiefly contribute to it-- people who work for companies that don't export anything.

The trade deficit is a useful angle for those who seek national solutions-- e.g., restricting competition by reducing intl trade-- but it's not at all clear how the aggregate measure is useful in understanding (or denigrating) a bunch of mutually beneficial activities.

Now all this said, there can be reasons to be worried about intl trade or to invoke sanctions. But not trade deficits.


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