Here’s a key point about trade. A bilateral trade deficit is NEVER by itself a policy issue. Consider a microeconomic parallel. I have a severe bilateral trade deficit with my barber. I’m a content provider for websites and my barber doesn’t even HAVE a website. He has no need for my services at all. But I regularly need my hair cut. So the trade between us is one way. I pay him cash, he provides a service to me. Is this alarming? No. Why not? First, because I do need the hair cuts and my barber does a good job of providing them. Second, because the price he charges is fair. If it weren’t fair, there would be other barbers in the world to whom I could turn. Third, because trying to cut my own hair would be an unproductive waste of my time — time better spent preparing content for websites. Likewise, there is nothing alarming if the US sells little to the People's Republic of China, and China sells a lot of stuff to us. In that case, China is the barber. Now, if I ...
Posts
There is no real reason for the policy makers of a nation to worry about bilateral trade deficits. After all, I have a gross trade deficit with my barber. I buy haircuts from him regularly and he never buys anything from me. I sell internet content. My barber has little reason to buy internet content. His website (if he even has one) would be a quite modest affair with no need for the product of my blood and sweat. Yet this deficit is sustainable -- there is no need for me to shed tears over it. What might be of concern is a global trade deficit. When what I sell to the world as a whole is of less value than what I buy from it, I am in an unsustainable position. The point, still, is that bilateral thinking doesn't help us address that situation. Just as some people make the mistake of worrying about bilateral trade deficits, others make the mistake that believing that such a deficit is a source of strength, of leverage. "I pay my barber a lot of money if we annual...