Is the trade deficit a problem? Not for the U.S.

Is this good news or bad news?

Country’s trade deficit narrows to a 5-year low. By Ana Swanson, The New York Times.

WASHINGTON — The U.S. trade deficit in goods and services narrowed more than 10% from August to September, as the Trump administration’s tariffs continued to weigh on trade,

data from the Commerce Department showed.

Imports grew just 0.6% from August to $342.1 billion, while exports rose 3% in the month, to $289.3 billion, according to data released Thursday.

Because exports grew more than imports, the U.S. trade deficit shrank, in line with the Trump administration’s goals.

At $52.8 billion, the trade deficit in goods and services hit its lowest level in September since June 2020, when the United States was in the midst of the COVID-19 pandemic.

Trade experts have cautioned against drawing too many conclusions from a few months of Data and said that trade patterns have recently been distorted by businesses’ efforts to avoid paying tariffs.

President Donald Trump has long seen the trade deficit as a sign of economic weakness.

Trump repeats a standard error: treating the trade deficit as a report card on national health. His reason: The word “deficit” confuses people.

If we send more money to foreigners than they send us, that’s a money deficit. If they send us more goods and services than we send them, that’s our goods and services surplus.

A trade is an exchange of presumed equals (“I’ll send you ‘A’ if you send me ‘B.'”)

So why is it called a trade “deficit”? Isn’t it also a trade “surplus”?

Further, the U.S. creates dollars at will by pressing a few computer keys. Virtually no labor or raw materials are required, and we can make dollars endlessly.

The goods and services we receive rely on labor and raw materials, which are limited resources. We offer something that costs us nothing to create, and in return, we receive valuable items; yet, we refer to this as a “deficit.”

It’s quite strange. I would gladly accept that kind of “trade” any day of the year.

It feels more like stealing than trading. Each year, I experience what some might call a “deficit” with my grocer, my favorite restaurants, my gas station, and others. I exchange dollars—currency that my government can produce at no cost—for valuable food and gasoline.

I don’t feel cheated. While I worked for some of my income, as a retiree, most of my current earnings come to me effortlessly. Despite that, I can still exchange those dollars for valuable goods and services.

And still, by the current definition, I’m running a “trade deficit.” It’s nuts.

I wouldn’t have had to work as much if my government had given me dollars for health care, food, housing, education, etc., which it easily could have done at virtually no effort, just by punching a few more computer keys.

The sweeping tariffs Trump has imposed on imports from countries around the world this year, including on automobiles, metals and furniture, have led to big swings in trade.

Before tariffs went into effect, many U.S. businesses brought in a surge of products to avoid paying import taxes.

After Trump’s global tariffs took effect on August 7, imports slowed sharply, then recovered somewhat in September.

On August 29, the Trump administration also ended the “de minimis” exemption, which allowed foreign shipments valued at less than $800 to come into the United States tariff-free.

Opponents criticized the rule as a loophole that penalized U.S. manufacturers in favor of foreign competitors.

That’s another way of saying, “Make imports more expensive to consumers, so American manufacturers can charge consumers more and/or deliver inferior products.“

That might help a few American manufacturers, but do you want higher prices and inferior quality?

Is this good news or bad news? If Americans are buying fewer goods because they are more expensive or harder to obtain, the deficit will decrease. However, this also means a reduction in consumer welfare, which is essentially what inflation and recessions mean.

Currently, we are trading inflation for a shrinking trade deficit—a lousy trade by any definition.

In short, Trump has made trade worse to make the “trade deficit” numbers look better.  

SUMMARY

The term “trade deficit” is often misunderstood; it can actually be considered a trade surplus by logical standards. We receive valuable and often scarce goods and services in exchange for dollars, which our government can produce in unlimited quantities at virtually no cost or effort.

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

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MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell;

https://www.academia.edu/

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