OpinionMeister

Tuesday, April 12, 2005

Trade Deficit Hysteria

Another month, another record trade deficit, another excuse for economically illiterate politicians, journalists and talking heads going over the top. Link.
The US trade gap rose 4.3% to $61bn (£32bn; 47bn euros) in February, data published on Tuesday showed, well above market forecasts of a $59bn shortfall. (...)

Textile imports rose sharply after the abolition of global quotas in January, with shipments from China to the US rising 9.8% in February.

The growth - fuelled by the ending of decades-old restrictions on the level of textile trade between individual countries - will increase pressure on the US government to introduce measures to protect domestic manufacturers.

I have three things to say to those who are scared by reports like this.

(1) These reports have it backwards. Foreigners want to invest in the US because it is the strongest economy in the world. In order to invest here, they must first sell us more than they buy from us, giving them the excess funds they need for their investments.

(2) The US ran a consistent trade surplus throughout the Great Depression. During all of our periods of fastest economic growth, we ran consistent trade deficits.

(3) If foreigners want to send us their cars, clothing, electronics and other manufactured goods and all they want in return are pieces of paper with pretty pictures of our presidents, which our Federal Reserve can print up for pennies, I say, "Bring 'em on!"

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