A nice little story showing how wrong so many are about trade and the economy – worries that the US trade deficit is expanding. Well, yes, obviously enough, the US economy is expanding mightily, so of course the trade deficit is increasing. This is what normally happens – we’re all buying more stuff and the rise in what we’re buying is going up faster than local production is. Thus we end up buying more from foreigners.
The U.S. trade deficit rose to a seven-month high in September as imports surged to a record high amid strong domestic demand, offsetting a rebound in exports.
The Commerce Department said on Friday the trade gap increased 1.3 percent to $54.0 billion, widening for a fourth straight month. Data for August was revised to show the trade deficit rising to $53.3 billion instead of the previously reported $53.2 billion.
Further, foreign economies aren’t growing so quickly, meaning their sucking in of our exports isn’t rising as fast as our own of their. So, logically enough, the trade deficit increases, this is pretty much what does happen in a boom:
Those numbers come as the Trump administration moved forward with a plan to tax $200 billion worth of Chinese imports and as China countered. In recent days, President Donald Trump has expressed hope that upcoming talks with Chinese President Xi Jinping can yield fruits on the impasse between the two nations.
Trump has expressed disdain for trade imbalances and has vowed to use tariffs as a way to reduce deficits and get agreements that are fairer to the U.S.
Sure, the administration is trying to dissuade us from importing by taxing us if we do. Yet unless those tariff levels are going to be truly extortionate they’re not going to overcome that greater effect of that booming economy.
Booming economies tend to have rising trade deficits. The best known method of reducing a trade deficit is to have a stonking great big recession. This sort of deficit is one of those things we’d probably prefer to have rather than the likely cure.
All of which is before we consider the wisdom of Adam Smith, there’s nothing more preposterous than consideration of the balance of trade. For, as Smith didn’t quite say, all a trade deficit is telling us is that we prefer the goods made by the bloke a country away rather than those made by a bloke a state or a county away. And who the hell cares about that?