Why isn’t President Trump proud of American trade deficits?

Bozeman Daily Chronicle | 9/25/2018 | Staff
marisha (Posted by) Level 3
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No economic artifact is as responsible for more confusion and bad policy as is the so-called “trade deficit.” President Donald Trump, of course, frequently rails against the U.S. trade deficit, citing it as evidence of economic weakness at home, of nefarious trade practices abroad, and of the need for trade restrictions.

Yet nearly everything Trump asserts about the trade deficit is wrong and often the opposite of the truth. But to be fair, the president’s confusion isn’t unique to him; it’s widespread. We need to bust a few myths about the trade deficit:

Myth - No - US - Trade - Deficits

Myth No. 1: U.S. trade deficits mean that demand for U.S. outputs is too low to maintain full employment.

This assertion comes from the fact that a U.S. trade deficit means that foreigners buy less from us than we buy from them. If foreigners bought more of our exports or if we bought fewer of their exports, it would appear that we could then produce more in America — and, hence, employ more Americans.

Appearance - Illusion - Dollars - Foreigners - Exports

This appearance is false. Those who fall for this illusion fail to realize that the dollars foreigners don’t spend buying our exports are instead invested by foreigners in the United States — in factories, retail stores, research and development, real estate, etc. Some dollars invest in U.S. equity, while others become loans to Americans. These investments promote economic growth and job creation here at home just as much as investments made in America by Americans.

Here’s an accounting identity: A U.S. trade deficit (or, more precisely, current-account deficit) is always exactly offset — down to the last cent — by a U.S. capital-account surplus. This surplus means that America attracts a net inflow of global investment funds. Far from being evidence of American economic weakness or foreign hostility toward America, this surplus is evidence of American economic strength...
(Excerpt) Read more at: Bozeman Daily Chronicle
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