Critique of Trump Economic Plan

An open letter to Trump economic advisor Peter Navarro here.

Clip:

This claim is untrue.  Nothing at all in economic theory says that it’s abnormal for a country to run trade deficits for over a decade, or even for over a century.  Nothing in economic theory implies that years, decades, or even centuries of unbroken annual trade deficits are evidence of ‘unfair’ trade practices by foreigners or of self-destructive economic policies at home.

If investment opportunities available in the United States this year are especially attractive relative to opportunities elsewhere, the U.S. will run a trade deficit this year as global investors use some of their dollars, not to buy American exports but, instead, to invest in America.  If next year the U.S. economy again offers especially attractive investment opportunities, America will run a trade deficit again next year.  Ditto for two years from now if the relative attractiveness of American investment opportunities continues for that year.  For an innovation-filled economy, such as that of the U.S., in a world in which the size of the capital stock can grow, there is no natural limit to the number of attractive investment opportunities that arise each year.  Nor is there a natural limit to the number of consecutive years that a country can, or will, continue to remain a disproportionately attractive destination for investment funds.

 

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