America’s Trade Deficit Is a Sign of Strength

A country runs trade deficits whenever it attracts more global capital than it repels

Letter to The WSJ.

"I hope that President Trump will read Joseph Sternberg’s column describing the economic doldrums inflicted on Europe by the European Union’s economic interventions (“Hurrah! Europe Is Fighting Over Economic Policy,” Political Economics, Feb. 13). Should he do so, the president might rethink his assertion that the EU has been “screwing us on trade”—a faulty conclusion that Mr. Trump grounds on the fact that the EU has consistently run annual trade surpluses with the U.S.

To describe real per capita gross domestic product growth in the EU as strong since 2009 would be generous and far from accurate; it has hardly grown. In the U.S., by contrast, real per capita GDP rose over these same years by about 32%. And yet in each of these years the U.S. ran a trade deficit with the EU, as well as with the rest of the world, while the EU, with the exception of 2022, ran a trade surplus with the rest of the world.

These data point to a reality that Mr. Trump refuses to acknowledge—namely, a country or region runs trade deficits whenever it attracts more global capital than it repels, and it runs trade surpluses whenever it repels more capital than it attracts. The EU consistently runs trade surpluses and the U.S. trade deficits not because the EU is cheating or besting America at trade but rather because the EU’s growth-stifling policies repel global investors while America’s more market-oriented policies are attractive to investors.

Mr. Trump’s obsession with putting an end to U.S. trade deficits will make America repel global investors.

Donald J. Boudreaux

George Mason University"