Worry About Budget Deficits, Not Trade Deficits

Next year's $1 trillion federal government budget deficit will bankrupt us. Trade deficits are trivial.


Michael Reynolds/SIPA/Newscom

Maybe Donald Trump is such a powerful communicator and pot-stirrer that other countries, embarrassed by their own trade barriers, will eliminate them. Then I will thank the president for the wonderful thing he did. Genuine free trade will be a recipe for wonderful economic growth.

But I fear the opposite: a trade war and stagnation—because much of what Trump and his followers say is economically absurd.

"(If) you don't have steel, you don't have a country!" announced the president.

Lots of things are essential to America—and international trade is the best way to make sure we have them. When a storm blocks roads in the Midwest, we get supplies from Canada, Mexico, even China. Why add roadblocks?

Steel is important, but "the choice isn't between producing 100 percent of our steel (and having a country) or producing no steel (and presumably losing our country)," writes Veronique De Rugy of the Mercatus Center.

Today, most steel we use is made in America. Imports come from friendly places like Canada and Europe. Just 3 percent come from China.

Still, insists the president, "Nearly two-thirds of American raw steel companies have gone out of business!"

There's been consolidation. But so what? For 30 years, American steel production has stayed about the same. Profits rose from $714 million in 2016 to $2.8 billion last year. And the industry added nearly 8,000 jobs.

Trump says, "Our factories were left to rot and to rust all over the place. Thriving communities turned into ghost towns. You guys know that, right?"

No. Few American communities became ghost towns. More boomed because of cheap imports.

It's sad when a steelworker loses work, but for every steelworker, 40 Americans work in industries that use steel. They, and we, benefit from lower prices.

Trump touts the handful of companies benefiting from his tariffs: "Century Aluminum in Kentucky—Century is a great company—will be investing over $100 million."

Great. But now we'll get a feeding frenzy of businesses competing to catch Trump's ear. Century Aluminum got his attention. Your company better pay lobbyists. Countries, too.

After speaking to Prime Minister Malcolm Turnbull of Australia, Trump tweeted: "We don't have to impose steel or aluminum tariffs on our ally, the great nation of Australia!"

Economies thrive when there are clear rules that everyone understands. Now we've got "The Art of the Deal," one company and country at a time.

I understand that Trump the developer liked to make special deals, but when presidents do that, it's crony capitalism—crapitalism. You get the deal if you know the right people. That's what kept most of Africa and South America poor.

But Trump thinks trade itself makes us poorer: "We lose … on trade. Every year $800 billion."

Actually, last year's trade deficit with China was $375 billion. But even if it were $800 billion, who cares? All a trade deficit shows is that a country sells us more than we sell them. We get the better of that deal. They get excess dollar bills, but we get stuff.

Real problems are imbalances like next year's $1 trillion federal government budget deficit. That will bankrupt us. Trade deficits are trivial. You run one with your supermarket. Do you worry because you bought more from them than they buy from you? No. The free market sorts it out.

Trump makes commerce sound mysterious: "The action that I'm taking today follows a nine-month investigation by the Department of Commerce, Secretary Ross."

But Wilber Ross is a hustler who phoned Forbes Magazine to lie about how much money he has. Now he goes on TV and claims, "3 cents worth of tin plate steel in this can. So if it goes up 25 percent, that's a tiny fraction of one penny. Not a noticeable thing."

Not to him maybe, but Americans buy 2 billion cans of soup.

Political figures like Ross—and Trump—shouldn't decide what we're allowed to buy. If they understood markets, they'd know enough to stay out of the way.


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  1. Love me some Stossell, but this topic could have used a long-format article. I don’t think anything corrupts the trade discussion more than the constant conflation of trade deficits with budget deficits.

    1. And tossing him up at 7am is like throwing him in the trash.

  2. However, there’s cause for concern for any entity that’s running a long-term overall trade deficit w the entire rest of the world if it means they’re borrowing to pay for consumption goods & services.

    1. The only people borrowing are those in the federal government, and US citizens own the bulk of that debt…

  3. The wisdom on running up debt to buy foreign (or domestic) products rests squarely with the firms and individuals doing the buying, which ain’t the government. It therefore it isn’t a cause of concern, other than if you are one of the firms or individuals involved…any more than to the extent you lie awake at night worrying about the Debt/Equity ratio of the S.

    1. SP 500.

      1. BAHHH. Robert, this all intended as a response to your post.

    2. I would agree with this sentiment except in the following cases: 1. Foreign product costs are being subsidized by their governments or 2. Products come from countries that do not impose comparable worker safety or environmental protection laws on companies. Although I am a free trade advocate, not allowing tariffs to account for these puts our companies at a distinct competitive disadvantage for things they have no control over.

      1. Well, I am grateful you aren’t mixing and matching trade and budget deficits.

        My problems with the rest of your argument are:
        1) I don’t see how it improves matters to respond to dumb behavior by other countries with a tax on our own citizens. Thats all a tariff is. I’m guessing your argument would be it hurts American jobs, which brings us to…
        2) You don’t know if the tariff does more harm than good. Reason has published examples where the cost of the trade restrictions dwarf the jobs saved, though it appears this is very difficult to really estimate. Our economy is so complex, I’d argue its probably unknowable. I find it amazing that people want to meddle in the economic life of others (and so confidently !) without considering the path of destruction they could be leaving (and likely are leaving).
        3) If your standard is comparable worker safety and environmental protection, we simply won’t have very much trade, as these goals are probably unrealistic. Or at least unrealistic in the sense of satisfying anybody. By the way, who is the all-seeing god who can correctly determine the “right” tariff to account for all this stuff ? Ain’t one. Its nothing but a racket for cronyism and corruption.

        That said, it pains me to make the case by arguing from a social utility standpoint. My deeper belief is it just isnt any of your business what stuff I purchase and from whom (broadly speaking). You’ve got a lot of nerve, bub.

    3. You are right but for the wrong reason: trade deficits are not debt…

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  5. Real problems are imbalances like next year’s $1 trillion federal government budget deficit. That will bankrupt us.

    We win on that deal too. We get stuff, and our kids pay for it later.

  6. I love Stossel but…

    “But Trump thinks trade itself makes us poorer: “We lose … on trade. Every year $800 billion.”
    Actually, last year’s trade deficit with China was $375 billion.”

    So we only trade with China? Last I checked, Trump (or Twitter in Chief) didn’t just target China but everyone.
    Supermarket and soup analogies need work. So Americans buy 2 billion cans of soup. Even if we all brought a 1000 cans, at .75 cents increase you are only talking – $7.5 a year.

    Use cars or a baseball bats that can be used to beat your political opponent into submission.

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