When Do "We" Want a Trade Deficit?

By: Ira Allen

On a lot of other corners in the capitol, however, men and women in suits of all colors are asking themselves and one another some pretty tough questions about the U.S. trade deficit. As long ago as 1999 (and doesn’t it seem weird that that should be "long" ago?), economist Robert E. Scott testified before the Congressional Committee on International Relations, arguing that "other countries have prospered at the expense of the U.S." when it comes to trade deficits (http://www.epinet.org/content.cfm/webfeatures_viewpoints _tradetestimony).

Scott points out that, throughout the 1950s and ‘60s, the U.S. maintained a global trade surplus—a far cry from the $480 billion and rising that is the current deficit (watch it soar at the Trade Ticker at www.americaneconomicalert.org! Only in the 1970s did the U.S .’s numbers beginning running into the red; but, since then, they’ve never gotten back into the black. As Scott notes, the people hardest hit by this flip-flop have been high-wage, high-skilled workers, many of whom have now entered the ranks of the working poor.

At first glance, this seems clearly to be a terrible thing. And it has been and continues to be, for many. There is no gainsaying or minimizing the suffering this has caused many people in the United States. This is also an important ethical issue, however, since the drop in U.S. real wages, which Scott and others attribute to trade deficits, has been accompanied by increased earnings in some of the poorest nations of the world. If something that’s clearly been bad for the American worker has also been, in many ways, good for the Chinese worker or the Malaysian worker, should this cause us to reevaluate our sense of what counts as a "positive economic outcome"?

In an increasingly globalized world, where does our loyalty lie? With the folks closest to home? With the folks who suffer the most? There are, of course, no easy answers to such questions. But the process of asking them—and of thinking them through—can offer a fuller understanding of just how good or bad the U.S. trade deficit really is.

And an understanding of the U.S. trade deficit—what it is and what it means—is crucial for anyone who wants to do international business. Well, anyone who wants to do international business with a clear conscience, that is.