Trade deficits are bad. Everyone knows a trade deficit is bad. So when a person goes to a store and buys a product they have a trade deficit with that store. That’s bad, correct? They have the product that has value but they don’t have the money. The person has less money and the store has more. That is a trade deficit. So why don’t we build, mine, and/or grow everything so we don’t have a trade deficit?
Kai Ryssdal of American Public Media’s (APM) Marketplace had Ryan Kailath explain this on Tuesday using a sandwich shop. The point he made with his report was that we don’t ‘lose’ money in a trade deficit. It’s a point that Mr. “Art of the Deal” Donald Trump should understand, but his words and actions indicate he that he doesn’t understand the basics of international trade.
Trade Deficit: It’s Not Just About Jobs
Many people focus on jobs when discussing the trade deficit. When other countries make stuff that we buy they create jobs for people in their country. It’s easy to argue that when they have the jobs, we don’t. That’s not necessarily true, nor relevant.
We are the 362.874 kg gorilla in the room when it comes to buying goods. We don’t need menial jobs that pay low wages in this country. We have spent a lot of money to educate people so they don’t have to work menial jobs for low wages. We need jobs that challenge workers and the pay living wages.
Buying inexpensive materials and goods from other countries we put those types of jobs there and have the products to use and raw materials for final manufacturing at a lower cost than if we did the work in this country. We save money and resell those products at a profit, but lower cost.
We create jobs in the secondary outcome of trading with other countries. That system may create a trade deficit, but that is a good thing. Trade deficits mean that a country is saving money because let’s face it, why would a company pay for a product that they could build here for less cost?
Managing a Trade Deficit
Protectionists believe that the United States is the center of the universe. They want to create a trade war with other countries because they believe our country doesn’t need them. It is driven by a racist point of view. Protectionists believe that our economy would be perfect if we didn’t interact with any other country. It is a childish mentality that is fatal in an adult world.
A trade war using taxes and tariffs to prevent trade doesn’t create jobs in the United States. A trade war makes businesses import products at a higher cost and makes other countries angry. A trade war is akin to telling your local grocer that you are going to charge them to allow you to buy food.
Trump is about to ignite a fuse that will blow our country up. The “Art of the Deal” guy isn’t artistic, and he’s giving our country a bad deal.