Trump & Trade Deficits

When Trump campaigned for President in 2016, he claimed again and again that the American economy loses from trade deficits and that America loses jobs to for example China and Mexico.

Well, in his first year in office the U.S. trade deficit rose to $566 billion, up from $505 billion in 2016, yet as Trump likes to brag about, the economy grew relatively fast and employment rose by about 2 million.

The reason why this happened is that trade deficits don’t “kill jobs” like protectionists and mercantilists believe. And that is because the flip side of trade deficits is an equally capital inflow. While imports can destroy some jobs, other jobs are created by capital inflows.

Trade deficits can be a symptom of reckless government deficits or unsound investment booms or low private savings, but they aren’t bad in the “job killing” sense that Trump others believes, as the last year’s U.S. economy illustrates.