“We lose $800 billion a year on trade, every year,” President Trump said in March when he announced his new tariff plan, referring to the size of the U.S. trade deficit in goods. Trump has lamented the U.S. trade deficit repeatedly, tweeting that as a result of it, “our jobs and wealth are being given to other countries.”
Why the U.S. Trade Deficit Can Be a Sign of a Healthy Economy
Plus: bonus historical trivia about Richard Nixon and the gold standard.
July 27, 2018
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Summary.
“We lose $800 billion a year on trade, every year,” U.S. President Donald Trump said in March when he announced his new tariff plan, referring to the size of the U.S. trade deficit in goods. But what is the trade deficit, and what causes it? Is it a bad thing? Imagine that your country is the world’s most attractive country in which to invest capital, because it has the biggest and richest market in the world, and the world’s most used and tradable currency, and it is scrupulous about protecting the rights of investors. Its advanced economy is leading the world in the transition to a service-based economy and, as a result, it runs the world’s biggest services trade surplus — by a factor of more than two over the next biggest surplus in the world. Per standard macroeconomic theory, this imaginary country would run the world’s biggest deficit in traded goods. The U.S. trade deficit in goods has more to do with this than it does with any economic weakness.