Sunday, December 23, 2012

"Trade Deficit" Confusion

Don Boudreaux writes:
It’s child’s play to give examples of how America’s trade deficit can rise without Americans’ debt rising or Americans’ asset holdings falling. And all children above the age of six should be able to follow these examples. Here’s just one example: Valerie in Virginia buys $1 of shoelaces from Hans in Hamburg. Hans adds his $1 to $999,999 of his German friends’ dollars that his friends (and now he) use to open a restaurant in Miami. America’s trade deficit rises as [a] result of Valerie’s purchase of foreign-made shoelaces. Yet no American is any more deeply in debt as a result; this transaction hasn’t caused Americans’ debt to rise by as much as a single cent. And no American’s (or Americans’) asset holdings are reduced by even a single cent.
For this and more, see:

Don't "Buy American" if buying Canadian is cheaper for the same or better quality.