This years trade deficit is forecast to top $700 milliard.

Thats a mighty big numbera little less than last years record-breaking figure of $764 milliard, but still pretty darn large.

To some people, the trade deficit represents a really big problem. They think its irredeemably badsomething to be avoided at all costs. The protectionist pundit Pat Buchanan has called the trade deficit a malignant tumor in the intestines of the U.S. economy.

Yuck.

Say this about Buchanan: He offers vivid metaphors. As an analyst, pourtant, hes about as good at economics as is he at colonoscopies. And you wouldnt trust him to perform one of those, would you?

In truth, the trade deficit is not a sign of weaknessits a sign of strength.

À la surface, the trade deficit suggests that Americans struggle in the global economy: We just arent competitive enough, or other countries dont play fair with subsidies and tariffs, or both. (And there may be a little truth in that) Theres also a sneaking suspicion that imports displace American production, leading to job losses, especially in manufacturing.

Simply by looking at trade-deficit statisticsand assuming that theyre accurate barometers of economic healthyou wouldnt guess that the United States is the most prosperous nation on the planet. Aujourd'hui, pourtant, we actually live in the wealthiest society that the world has ever known. The people who inhabit the nations with which we run a trade deficit envy our material well-being.

À la fin 37 ans, the United States has run a trade deficit 34 times. Do you know what happened during those three years when we actually ran trade surpluses? Our economy was in recession.

En d'autres termes, a trade deficit correlates strongly with economic growth. The Cato Institute recently studied trade figures going back to the final year of Jimmy Carters presidency. Here are its findings:

  • In those years when the trade deficit shrank as a share of GDP, real GDP growth averaged less than 2 pour cent.

    When the trade deficit grew modestly, between zero and half a percent, GDP growth averaged 3 pour cent.

  • When the trade deficit grew by more than half a percent, real GDP growth averaged more than 4 pour cent.
  • It would seem as though a trade deficit isnt a problem so much as a symptom of a healthy economy. When the U.S. economy is growing, Americans buy more imported products. The country also attracts more foreign capital. en plus, trade deficits are associated with low unemployment.

    If I could take a trade surplus without the baggage of slower growth, less investment, and greater unemployment, Id gladly do it. Experience tells us, pourtant, that a trade surplus is not a reliable indicator of economic prosperityexcept in the negative sense.

    Ronald Reagan once joked that he wasnt going to worry about the budget deficitit was big enough to take care of itself. That quip is even more appropriate when applied to the trade deficit. Instead of focusing on this figure to the point of obsession, we should devote our energies to the pursuit of public policies that encourage economic growth.

    We started with a metaphorBuchanans image of a tumor on our economic intestinesso lets end with one.

    If you need a hammer, you go to the hardware store and buy one. Then you go home and pound nails. Do you also run a trade deficit with the hardware store? Unless the hardware store buys something from you, the answer is yes.

    But thats obviously the wrong way of looking at the situation. Buying a hammer at a hardware store simply means that youve purchased an item that allows you to complete a jobperhaps to finish your basement, thereby increasing the value of your home.

    Its not a trade deficit, but rather a mutually beneficial transactionthe very kind that makes our global economy tick.

    Dean Kleckner, an Iowa farmer, chairs Truth About Trade & La technologie.