December 3, 2016


Donald Trump's Trade Policies: Blessing Or Curse? (Stuart Anderson, 12/03/16, Forbes)   

What do economists think of Donald Trump's proposed trade policies? To find out, I decided to ask two leading economists, Daniel Griswold, a Mercatus Center senior research fellow and co-director of the Program on the American Economy and Globalization, and Mark Perry, a scholar at the American Enterprise Institute, a professor of economics and finance at the University of Michigan's Flint campus and creator and editor of the popular economics blog Carpe Diem.

Perry: One very important, but almost always overlooked point is that there really is no overall deficit (or surplus) for international transactions once we account for both: a) cash flows for goods and services (current account) and b) cash flows for financial assets (capital account). A full accounting for all cash inflows and cash outflows over a certain period for all international trade in goods, services and financial assets in known as a country's "balance of payments." And just like a corporate balance sheet for a company, our balance of payments as a country always has to balance once we consider our "current account" (which has been in deficit for many decades) and our "capital account" (which has been in surplus for many decades).

Beyond the fact that the discussion on the trade deficit is typically incomplete by focusing only on trade flows for goods and services while ignoring trade flows for financial assets, there is a larger issue with the obsession with America's trade deficit. And that's the fact that the trade deficit is almost always reported in the media as a sign of America's economic weakness, when that is not the case at all. After all, the flip-side of the "trade deficit" is an inflow of foreign capital that provides a vital source of financing that fuels capital creation and business expansion in America, which leads to increased future output and employment in the U.S., and a more dynamic and vibrant economy. George Mason University economist Don Boudreaux expressed it this way: "To lament America's trade deficit is to lament the fact that foreigners are investing in America. And that seems very odd."

Posted by at December 3, 2016 7:04 PM