Why trade deficits aren't automatically bad

**Xiahou** · 05-16-2006, 16:38

It's not about optimism or pesimism to me. While the amount we import has grown, our own economic output has also grown at a pace greater than that of our peers. Trade deficits are no more a sign of economic weakness than surpluses are of economic strength.

**Red Peasant** · 05-16-2006, 16:57

Hmm, I wonder if you would swallow this if it was a Democratic administration running up such huge deficits?

Somehow, I think not.

**Atilius** · 05-16-2006, 17:11

Originally Posted by Red Peasant

Hmm, I wonder if you would swallow this if it was a Democratic administration running up such huge deficits?

Red,

It's awfully difficult for any administration to control trade balances. It's possible to make the balance of trade more favorable by devaluing the currency or imposing import restrictions, but this causes other problems and invites retaliation from one's trade partners.

The balance of trade is more a result of individual and corporate purchasing decisions.

**Red Peasant** · 05-16-2006, 18:34

Yeah, but this reeks of political spin.

**Ice** · 05-16-2006, 19:46

I enjoyed this article. This is weird because I was just having a talk about this with a former economics teacher mine. Good stuff. If you have anymore please don't hesitate to post.

Yeah, but this reeks of political spin.

That article neither bashed nor glorified any politcal party. All it did was give a little insight on the economy.

**Papewaio** · 05-17-2006, 04:32

Trade deficits are like any debt, they are ok if they are investments which over the long term will pay off (like sending students overseas to learn skills to bring back to a country). However if they are spent on non-productive goods then all they are is a bad debt.

The question then to ask is...is USA's trade deficit caused by the USA investing or by another country investing in the USA or are they bad debt like buying the cheapest consumer goods...like TVs and electronic goods from China.

**drone** · 05-17-2006, 14:54

I thought the majority of the trade deficit was cheap good from China and imported oil. If this is the case, then it's probably bad debt, unless the "cheap goods from China" part helps to bring China further to an open system.