The latest figures reveal that Americans bought $12.1 billion more in goods and services from abroad in February than they sold, the highest monthly trade gap since the government began issuing monthly figures in 1992. An Associated Press report on the new numbers called the trade deficit “the biggest problem facing an otherwise stellar U.S. economy” and predicted that the deficit “is likely to grow much worse as the year progresses,” given the economic slowdown in Asia.
Contrary to the common spin, trade deficits are not necessarily bad news. A trade deficit can even be good news for an economy, reflecting flush consumers and an attractive climate for investment.
America’s continuing trade deficit has nothing to do with lack of industrial “competitiveness” in the United States or unfair trade barriers abroad. The deficit reflects a net inflow of capital from abroad, which allows Americans to buy more goods and services on the international marketplace than they sell. It’s as simple as that.
February’s trade numbers did contain bad news, not because imports exceeded exports, but because both imports and exports fell. The weakness of U.S. exports stems directly from the economic slowdown in Japan and the rest of East Asia. Their economic troubles are spilling over to the United States, hurting American exporters. This only confirms that trade is not a zero‐sum game. The economic success of our trading partners enhances our success, and their troubles add to our troubles.
The February numbers revealed a growing bilateral trade deficit with Japan; according to the Associated Press, it has “stirred alarm” in the Clinton administration. But it is Japanese officials who should be alarmed. The growing trade gap with Japan reflects the continuing weakness of Japan’s economy and America’s relative health. If the trade deficit is such bad news for the United States, would those who worry about it prefer that we swap economies with Japan?