Why Trade Deficits Really Don’t Matter Very Much

COMMENTARY Trade

Why Trade Deficits Really Don’t Matter Very Much

Mar 29th, 2018 1 min read
COMMENTARY BY
Tori K. Whiting

Jay Van Andel Trade Economist

Whiting provides the conservative true north on free trade through her research and writing.
Trade deficit statistics are an insufficient measure of the health of bilateral trade relationships. AvigatorPhotographer/Getty Images

Key Takeaways

The Trump administration says our trade deficit, now valued around $560 billion, indicates America is losing at trade.

Similar to the benefits I receive from my trade deficit with Mexico, American businesses and consumers gain from the imports they purchase.

If individual trade deficits do not matter, then federal-level trade deficits should not matter either.

America’s growing trade deficit has generated a lot of talk in recent months. The Trump administration says our trade deficit, now valued around $560 billion, indicates America is losing at trade.

I decided to calculate my trade deficit. Like the U.S., I consume or buy more than I sell.

I added to my trade deficit at my local grocery store last week. My grocery bill totaled roughly $150. The grocery store did not purchase from me, but I was able to get milk, meat, produce, and other consumable goods.

I also contributed to the U.S. trade deficit with Mexico by purchasing avocados, limes, lettuce, and asparagus. Some of these items are out of season domestically, but thanks to free trade, they were fresh and delicious.

Purchasing each of these items increased my trade deficit because Mexico did not purchase anything from me. Yet, both sides of the transaction gained. In fact, I have a trade deficit with every business I encounter, from my favorite clothing retailer to the electronics store.

The only exception is my employer, which pays me in dollars for my daily work. I have a trade surplus in this case.

But do these trade deficits and surpluses matter?

Similar to the benefits I receive from my trade deficit with Mexico, American businesses and consumers gain from the imports they purchase.

When an automotive company in Michigan purchases $50,000 in parts from Mexico, it receives what it needs to assemble a vehicle. Meanwhile, the Mexican company receives dollars, which it uses to buy American exports or invest in the U.S. Either way, both companies benefit.

American workers also benefit in this case. Domestic companies exporting to Mexico will receive dollars for their exports, which allows them to expand their businesses, hire additional workers, or increase worker salaries and benefits. Furthermore, when a Mexican company invests in the U.S., it creates jobs for American workers.

Trade deficit statistics do not take these benefits into account.

The next time you hear about the problems with America’s growing trade deficit, take a moment to think about your trade deficit. If individual trade deficits do not matter, then federal-level trade deficits should not matter either.

This piece originally appeared in The Daily Signal