On Trade Deficits

The New York Times published an article today on the United States' record trade deficit of 166.2 billion last quarter. What the article (and most people, I believe) overlook is that a trade "deficit" is a misleading way of describing the fact that we import more than we export. By applying this negative label we fail to perceive that our ability to import so many goods results from the strength of our domestic economy, not its weakness. The fact is that our country is so prosperous that we can afford to buy an extraordinary (and seemingly ever-increasing) quantity of goods and services from abroad. The trade "deficit" is, more than anything, a measurment of our wealth.

What's more, the NY Times figure actually includes "capital exports," meaning that American investments abroad are now being regarded as harmful to our economy. This foreign direct investment is a huge factor behind the strength of U.S. businesses as well as one of the keys to the economic growth of underdeveloped nations. We are as prosperous as we are today because our corporations have always sought cheaper ways to do things in low-cost nations.

Analsyts (including myself of course) consistently tout the strength of the Chinese economy. What we often fail to note is that China imports more than it exports and will continue to do so for the foreseeable future (oxymoron alert).

(Bugmenot.com is not working for NY Times right now. As I've noted previously though, I think the Times is one of the few papers that can legitimately ask us for our information...they've earned the right).