Unusually Good Column on the US Trade Deficit

Steve Chapman wrote an unusually well informed column for the Chicago Tribune, "What Donald Trump and Bernie Sanders don't get about the causes of our trade deficit."

Most of Chapman's column rehearses the argument that the US trade deficit is driven by the US capital account surplus. He couches this in terms of Trumps frequent lament that the US "doesn't win anymore" and that the trade deficit is one example of the US losing. Chapman points out that the trade deficit is a result of a capital or investment surplus and is, therefore, evidence of the US winning with regard to attract foreign investment. He notes:

The little-known secret of international commerce is that foreigners can't invest more here than we invest abroad unless they also sell us more than we sell them. This is not a matter of academic theory. It's a matter of accounting.

The late economist Herbert Stein wrote the entry on "balance of payments" in "The Concise Encyclopedia of Economics." "A deficit in the current account is always" — always — "accompanied by an equal surplus in the capital account, and vice versa," he noted.

Confronting that simple fact means recognizing that the trade deficit is merely the flip side of a healthy phenomenon. If no one wanted to invest here, we'd be running a trade surplus — and we'd regret it.