August 30, 2004

Trade Deficit?

New blogger Scott Harris has a really fine examination of trade deficits and mercantilism and the nature of the global economy. I've never thought trade deficits were all that much of a bad thing. Consider this: If we bought an equal amount (in dollar terms) from Japan as they bought from us, trade would be said to be in balance. But if we then bought another 40 Honda cars at $25,000 a piece, we would be said to have a trade deficit of $1 million with Japan. But no one ever talks about the 40-Honda trade deficit Japan has with us. You can't drive money - but you can drive a car. And the $1 million in U.S. cash held by the Japanese only has value, ultimately, because it can be spent on goods and services sold in or produced by the United States.