Oren Cass, Chief Economist
American Compass
Oren:
In their just criticism of the whackadoodle “formula” used by Trump to set his “Liberation Day” tariffs, Kevin Corinth and Stan Veuger point out this fundamental economic truth: “The trade deficit with a given country is not determined only by tariffs and non-tariff trade barriers, but also by international capital flows, supply chains, comparative advantage, geography, etc.”
In response to this indisputable point, yesterday you sarcastically tweeted: “Can a simple caveman lawyer get some help here? How would comparative advantage determine a trade deficit?”
Surely even a Harvard-trained lawyer, such as yourself, can grasp the following: Because of comparative advantage, Americans buy $1M of wine from France, then the French use these export earnings to buy $1M of bananas from Guatemala, and then Guatemalans spend this same $1M on software imported from America. As a result, each of the three countries has a “trade deficit” with another country, and a “trade surplus” with a different country.
What about this above simple example is beyond your comprehension? What part stumps you? Where in it do you get lost? If you really do not understand how comparative advantage is among the factors that determines any so-called “bilateral trade deficit,” then – pardon my bluntness – you’re no more qualified to comment and advise on trade policy than a flat-earther is to comment and advise on astrophysics.
But I suspect that you do understand how comparative advantage helps to determine the particulars of trade flows between pairs of countries. You indicated as much when you wrote the following a mere six months ago:
If the debate were over a U.S. trade deficit with one country, the professor would be on point. A U.S. deficit with Norway has no particular implications for the wellbeing of the United States, if offset by a surplus with Belgium, just as Professor [Joel] Dean’s deficit with Whole Foods is offset by his surplus with the university where he teaches.
Have you, in April 2025, fundamentally reassessed your understanding, expressed in October 2024, of the logic of what prompts individual economic entities to trade with each other? If so, I’d love to hear your reasoning. If not, what’s the point of your tweet?
Sincerely,
Don
