Following is my response to the Commerce Department’s request for public comments on the “Causes of Significant Trade Deficits.”
In a globalized economy, where the value embedded in most manufactured goods originates in multiple countries and two-thirds of trade flows are intermediate goods, bilateral trade accounting is meaningless. In a world where statistical agencies attribute the entire $180 cost of producing an Apple iPhone to China, where it is merely assembled for a cost of about $6, what do trade statistics and trade balances mean? By assigning 100 percent of the value of an import to the final country on the assembly line, trade statistics have lost most of their meaning.
The misguided belief that the trade account is a scoreboard measuring the success or failure of trade policy explains much of the public’s skepticism about trade and trade agreements, lends plausibility to claims that the United States is routinely outsmarted by shrewder foreign trade negotiators, and provides cover for the same, recycled mercantilist and protectionist arguments that have persisted without merit for centuries.
If the trade deficit reduces economic activity and destroys jobs, why are there positive relationships between these variables? The overall trade deficit, by and large, is also a meaningless statistic. It is neither a barometer of economic health nor a running tally of debt with which we are burdening future generations.