Trade Deficit Reality Check


Trade Deficit Reality Check

Aug 30, 2010 1 min read

Former Jay Van Andel Senior Policy Analyst in Trade Policy

Bryan served as an advocate for free trade through his research at The Heritage Foundation.

Consider these recent print headlines: Economic Growth Slowed by Trade GapEconomic Growth Cut Sharply Due to Trade Gap; and Economy Slows to 1.6 Percent as Trade Gap Widens.

The people who wrote those headlines and the corresponding articles must have awfully short memories. Last year, the trade deficit fell by 46 percent. Imports declined by 23 percent. Analysts who believe trade deficits and imports are a drag on the economy should have been thrilled. But here is the rest of the story: Real GDP fell by 2.6 percent and the unemployment rate increased by 60 percent.

Anyone paying attention, however, shouldn’t have been surprised. A weak economy leaves Americans with less money to spend on imports, and as a result the trade deficit tends to shrink.

These reports lamenting the recent surge in U.S. imports are misguided. They encourage protectionist economic policies that would further damage our already reeling economy. They also allow politicians to blame imports for our economic problems, instead of the massive growth of government spending and regulations that are dragging our economy down.

Americans should hope for a big surge in imports in the near future. A fast-growing economy would give Americans more money to spend on imports and that—note to headline writers—would obviously be a very good thing.

This piece originally appeared in The Daily Signal