Do Trade Deficits Cause Unemployment To Go Up?

They might not. Daniel Griswold has a post on this today at the Cato blog. See Time for a Reality Check on the Trade Deficit. It links to more detailed research he did called Are Trade Deficits a Drag on U.S. Economic Growth? He shows that when trade deficits are rising, we usually experience economic growth. He says:

"How can the seeming paradox of faster growth and expanding trade deficits be explained? The evidence certainly does not suggest that an expanding trade deficit somehow fuels more rapid economic growth or that a trade deficit is necessarily good for the overall economy.

More plausibly, causation flows from economic growth to the trade balance. An expanding economy increases demand not only for domestic production but also for imports. It also promotes more domestic investment as businesses seek to meet rising demand and capitalize on new investment opportunities.

Rising investment opportunities, in turn, attract foreign capital to the United States to fund investment over and above what can be financed through domestic savings alone. Those capital inflows are the flip side of the current account deficit: the greater the net inflows of capital from abroad, the greater the current account deficit needs to be to accommodate those inflows. Thus, when GDP growth accelerates, so does domestic investment, inflows of foreign capital, and the current account deficit. While a growing current account deficit is not the cause of faster GDP growth, it is often its handmaiden.

Our simple comparison of the current account balance and GDP growth does not account for a host of other factors that can influence both growth and the trade balance. But at the very least the data fail to show any discernable negative effect on economic growth from a rising trade deficit. Absent any real evidence, the standard assumption that trade deficits are a drag on growth should be re-examined before it is repeated again uncritically."

My own research on this is The trade deficit, unemployment rates and wages. It explains some regression analysis. I could not find that trade deficits caused unemployment to go up. I tried to account for other factors like changes in the GDP from year to year.