on April 11, 2025
… is from University of Southern California finance professor Larry Harris’s superb essay – “The Trade Deficit is a Sign of Wealth” – in today’s Wall Street Journal:
The U.S. trade deficit is easily understood without any reference to international finance. We have a trade deficit because foreigners send us more goods and services than we send them. Foreigners work hard to produce the goods and services they send us, and, of course, we work hard to produce those we send them. Our trade deficit simply means that foreigners are working more to serve us than we are working to serve them.
Looked at this way, the deficit doesn’t sound so bad. Most people would prefer to have others working for them than to work for others. The easiest way to separate the rich from the poor is to identify who is working for whom.
DBx: Prof. Harris goes on to point out that the reason so many non-Americans are willing to work so hard for Americans is because non-Americans want to acquire dollars to increase their economic security or to invest in America. It’s a win-win. And yet the language – “trade deficits” – frightens people who don’t know economics into giving power to politicians to restrict trade.
Adam Smith nailed it.
