President Donald Trump is turning up the heat on his trade war. On Friday the president threatened to slap 20 percent tariffs on European cars; tariffs on $34 billion of imports from China are set to take effect next week. All this stems from Trumps obsession with eradicating the U.S. trade deficit. By Trumps reasoning, any country with a trade deficit is a loser in the global economic system and suffers from job losses, capital flight and economic weakness.
But maybe we should change our thinking about trade deficits. A deficit arises when other nations ship more goods and services to us than we ship to them. How do we wind up the loser in this game? We end up consuming more goods than we actually produce. The trade-surplus nations end up in a reverse situation: they end up consuming less than they produce.
Its like your neighbor goes to the market and then leaves all her groceries on your doorstop. You have a pantry more full than your income alone would allow. Your neighbor? She may end up ahead on karma, but not in any material sense.
