The Trade Deficit, the Dollar, and Tariffs

Phil Gramm, who was an outstanding Senator from Texas, a true conservative, particularly financially, and Donald Boudreaux, a conservative, free-market professor, wrote an excellent and informative op-ed in the Wall Street Journal today.  Find the paper or you may be able to read it free online.  The link is here, and if you just X out the ad, you can read the op-ed.  (WSJ Op-ed)

Very few people understand the link between trade and capital investment flows between nations, and the impact of that dynamic on the dollar.  The most important point they make is that a trade surplus or trade deficit has little to do with economic prosperity, what matters more is investment, and the more foreigners invest in a country the better, and the US attracts a ton of foreign investment.  That investment, domestic and foreign, is what creates jobs and wealth and economic growth.

The authors clearly point out the data showing that when the US had a trade surplus, economic growth was lower than when we ran a trade deficit.  They also point out that contrary to the absurd assertions of economically illiterate populists, industrial production in the US, i.e., manufacturing, is far larger now than it was the last time the US had a trade surplus, even after inflation.  And the biggest problem they put forward is that by concentrating on the trade deficit, and potentially interrupting the flow of investment into the US, the Trump administration is focused on the wrong main economic issue–which is reducing the deficit.