A nearly universal consensus prevailsthat the goal of U.S. trade policy should beto promote exports over imports, and thatrising imports and trade deficits are badfor economic growth and employment.
The consensus creed is based on amisunderstanding of how U.S. gross domesticproduct is calculated. Imports arenot a “subtraction” from GDP. They aremerely removed from the final calculationof GDP because they are not a part of domesticproduction.
Contrary to the prevailing view, importsare not a “leakage” of demand abroad.In the annual U.S. balance of payments, alltransactions balance. The net outflow ofdollars to purchase imports over exportsare offset each year by a net inflow of foreigncapital to purchase U.S. assets. Thiscapital surplus stimulates the U.S. economywhile boosting our productive capacity.
An examination of the past 30 yearsof U.S. economic performance offers noevidence that a rising level of imports orgrowing trade deficits have negatively affectedthe U.S. economy. In fact, since1980, the U.S. economy has grown morethan three times faster during periodswhen the trade deficit was expanding as ashare of GDP compared to periods whenit was contracting. Stock market appreciation,manufacturing output, and jobgrowth were all significantly more robustduring periods of expanding imports andtrade deficits.
The goal of U.S. trade policy shouldnot be to promote exports at the expenseof imports, but to maximize the freedomof Americans to trade goods, services, andassets in the global marketplace.