Donald Boudreaux says, Stop Worrying About the Trade Deficit:
America’s trade deficit — in December reaching a near-record $64.7 billion — is unfortunate, right?Wrong. Contrary to popular opinion, this so-called ‘deficit’ is a blessing.
Consider that if Americans export lumber, sheetrock, and architectural blueprints to China so that people build a factory there, we’re gleeful. ‘Wonderful!’ we proclaim. ‘Exports are up and our trade deficit is down!’
But if those very same building materials are assembled by Americans into a factory situated and operated in, say, Utah and then bought by Chinese investors, we complain — led today by the likes of Senators Charles Schumer and Lindsey Graham — that ‘Something’s wrong! Our trade deficit is higher!’
Truth is, though, that nothing economically important separates the first scenario from the second. In each case the world’s stock of productive capital grows as Americans produce things for sale to foreigners. Those cases appear different from each other only because of the conventions of international commercial accounting, which records investments separately from imports and exports.