A trade deficit isn’t bad. In fact, it really is the other way around. The greater the deficit, the more prosperous we are as a nation and as the world’s super economic power. In my opinion, President Trump is making a mistake by turning trade into a political issue.
What is a trade deficit? Put simply, it means we’re importing more goods than we’re exporting. According to Investopedia, our trade deficit was $500 billion in 2016.
You probably already know what I believe: Free markets are the most efficient and effective way to receive immediate feedback on the performance of any businesses and industries. When the government is allowed to artificially stifle or incentivize specific businesses or industries, it always messes it up. And that is exactly what Trump is doing when he slaps more and more tariffs on certain imports. He is arbitrarily rewarding some businesses or industries while penalizing others. For example, why is he going after steel? Steel is used for national security purposes. Now, I’m not going to pretend I know everything about this issue, but is steel really a national security issue? If the time comes when we need to ramp up our steel production and can’t rely on the other nations that currently provide a portion of our steel, I am positive we can meet those needs.
Maybe there is another underlying issue in this negotiation that we are not all privy to, but it seems like this is one big political move.
Regardless, I don’t see a problem with the trade deficit. We bought more and exported less, but it’s not as if we didn’t receive something in exchange. We received $500 billion in something. All of this is to be expected: the biggest economy in the world buys more goods than the smaller economies. Poorer nations don’t buy as much because they simply don’t have the economic power to do so. I would imagine that a billionaire purchases more goods than a millionaire.
I was just in Greece and here is a good example comparing what I buy as a millionaire to what a billionaire buys. I have a swimming pool in my backyard, but this billionaire has one on his yacht! (For perspective on how large this yacht’s pool is, note the size of the person on the right-hand side of the deck. You can barely see him.)
Another argument against the trade deficit is that buying things more cheaply from other nations is costing us jobs here in the U.S. Yes, that is exactly what happens in a free market. Sometimes it is difficult to compete when others have some type of competitive advantage. It happens all the time here in the U.S. and yet we don’t put tariffs on one company to help out another.
Tariffs only help a select few and penalize everyone else. It may help our steel industry to compete better, but it raises the price for everyone else who buys products made with steel – which is, for the most part, everyone else in the U.S. How is that a good solution?
However, there is a situation in which a trade deficit can be a bad thing. My definition of a bad trade deficit is when you purchase something, and you don’t receive the value that was either promised or expected, which happens all too often. There’s no need for tariffs on these bad trade deficits, either. The beauty is that we can stop using that vendor and find a better one. The free market rewards those who do well and punishes those who don’t perform. Isn’t that what we want? Competition makes us all more successful.
When it comes down to it anyway, can Trump really solve a trade deficit? Or is the better question, “Does he need to?”