Kevin Williamson of National Review Online focuses on the confusion surrounding trade deficits.
The problem with all this trade-deficit talk is that nobody seems to know what trade deficits are, what they mean, or what causes them.
A trade deficit is nothing like a budget deficit. Each year’s federal budget deficit adds to the total debt owed by the federal government. Trade deficits don’t do that, which is one reason why “trade deficit” is not a very useful term. A trade deficit is just a bookkeeping entry, not a debt that has to be paid. Countries don’t trade — people do. Americans are no more harmed by the trade deficit with Germany than you are by your trade deficit with Kroger.
Trade deficits are not caused by tariffs or other protectionist policies, and neither are trade surpluses. You wouldn’t know it to hear President Trump talk, but the United States and the European Union have on average almost the same tariff rate: 1.7 percent for the United States vs. 2.0 percent for the European Union, according to World Bank data. …
… Not only are trade deficits not driven mainly by trade policy, they are not really driven by consumer behavior, either. It’s true that many Americans prefer German cars and French wines — and cheap electronics and T-shirts made in China — but trade deficits mostly are the result of several other causes: macroeconomic factors such as tax policies and savings rates, the strength of a country’s currency, and, most important, its attractiveness to investors. Ironically, the corporate tax reform that President Trump is rightly proud of may contribute to higher trade deficits by making the United States a more attractive place to invest.
