One of the many catchphrases that people who seek to use government power employ is that we need to have “balanced trade” with other nations. Supposedly, danger lurks if the United States has a “trade deficit.” Invariably, the protectionists point to China to make their case.
In this AIER article, Don Boudreaux takes aim at this nonsense. He writes:
No concept in all of economics is misunderstood and abused as much as that of the so-called ‘trade deficit.’ This misunderstanding and abuse owes much to the word ‘deficit,’ which conveys a sense of decline and imbalance. No one, of course, wants to be declining or unbalanced. But, in fact, the trade deficit is not a sign of any economic decline or real imbalance.
Boudreaux’s argument should convince open-minded Americans that when people chatter away about our “trade deficit,” they are trying to hoodwink them into supporting tariffs and other trade restrictions that would harm the country (although benefiting a few).
I particularly enjoy Boudreaux’s closing challenge to the protectionists:
I urge Oren Cass and other American protectionists to practice for themselves what they preach for our country. I urge each of them to try to eliminate the many bilateral trade deficits that they run in their individual economic affairs. If they do so — if they succeed at having no trade deficit with another economic entity — and honestly report to us that they have thereby been enriched, I will then listen with respect to their warnings about America’s trade deficit with China. But until then, I’ll reject these warnings for what they are: foul fruits of economic ignorance.