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Trade Deficit Increase Not Necessarily a Bad Thing

Posted By Bryan Riley On December 11, 2012 @ 11:34 am In Economics | Comments Disabled

The U.S. Bureau of Economic Analysis (BEA) announced [1] today that imports and exports both declined in October while the overall trade deficit [2] increased.

Reactions to the BEA report were misleading.

For example, the Associated Press [3] reported: “A wider trade deficit acts as a drag on growth.”

In fact, U.S. trade deficits have almost always heralded a booming U.S. economy. And surpluses are no sure sign of health. Look no further than Greece, for example, which is running a trade surplus [4] while its economy is in shambles.

Some reporters did a better job of explaining the trade deficit’s impact. Jeffry Bartash [5] at MarketWatch reported: “Falling imports, meanwhile, reflect a softer U.S. economy.”

Bartash is right. Americans would benefit from a strong, fast-growing economy that gives us more dollars to spend—whether on domestically made products or on imports.

The bad news in today’s BEA report is not that the trade deficit increased but that exports and imports both declined. The ability to trade more—and to afford more imports—is a sign of economic strength, not weakness. Just ask people in Greece how that trade surplus is working out for them.

Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2012/12/11/trade-deficit-increase-not-necessarily-a-bad-thing/

URLs in this post:

[1] announced: http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm

[2] deficit: http://www.heritage.org/federalbudget/

[3] Associated Press: http://www.businessweek.com/ap/2012-12-11/ahead-of-the-bell-us-trade-deficit

[4] trade surplus: http://www.dailyfx.com/forex/fundamental/article/guest_commentary/2012/12/10/Guest_Commentary_Greece_had_a_trade_balance_surplus_-_does_this_figure_matter_anymore.html

[5] Jeffry Bartash: http://www.marketwatch.com/story/us-trade-deficit-rises-49-to-422-billion-2012-12-11?link=MW_latest_news

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