Monday, January 13, 2020

How to Deal With a Trade Deficit

In a review of Fred P. Hochberg's book, Trade Is Not a Four-Letter Word, George Melloan writes:
Mr. Hochberg argues persuasively that Mr. Trump, if you take him at his word, displays a “fundamental misunderstanding” of trade in his exaggerated concern over trade deficits. A longtime editor of this newspaper, Robert L. Bartley, once wrote that the way to deal with trade deficits was to ignore them. Mr. Hochberg makes the same point, noting that when Mr. Trump proposed his new tariffs on steel and aluminum in the spring of 2018, he told reporters that through trade deficits “we lost, over the last number of years, $800 billion a year . . . [and] we got to get it back.”

But money spent abroad, Mr. Hochberg says, isn’t “lost.” It has been “spent by American families and businesses on electronics, furniture, clothing and manufacturing equipment—as well as ‘intermediate goods,’ which are parts and non-consumer pieces that get incorporated into products we make here.” It also goes for things we no longer make here—100% of our penicillin comes from China, for example—as our economy “has moved on to higher-tech goods and, especially, services.”

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