Want to Rev Up the Economy? Don’t Worry About the Trade Deficit 

N. Gregory Mankiw: “In recent years, American imports have exceeded exports by about $500 billion a year. Mr. Navarro and Mr. Ross argue that if better policies eliminated this ‘trade deficit drag,’ gross domestic product would be higher and more people would be employed.”

“But a fuller look at the macroeconomic effects of trade deficits suggests that things aren’t so simple.”

“…many of the policies proposed by Mr. Trump will increase the trade deficit rather than reduce it. He has proposed scaling back both burdensome business regulations and taxes on corporate and other business income. His tax cuts and infrastructure spending will most likely increase the government’s budget deficit, which tends to increase interest rates. These changes should attract even more international capital into the United States, leading to an even stronger dollar and larger trade deficits.”

“Rather than reflecting the failure of American economic policy, the trade deficit may be better viewed as a sign of success. The relative vibrancy and safety of the American economy is why so many investors around the world want to move their assets here. (And similarly, it is why so many workers want to immigrate here.)”

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