Economic Insights

US Reports Another Trade Deficit: What A Waste Of A Stat

The US reported a $65.7 billion trade deficit for the month of February. For all of 2005, the deficit was $724 billion. Once again, the press jumped all over this number--implying we are exporting our way to extinction.

The reality is that since Reagan ignored the trade deficit and opened US boarders to competition, the US and global economies have boomed. With the growth of the trade deficit, inflation has crashed, unemployment dropped, stock markets surged, communism has been vanquished and democracy has flourished.

I recall a speech given in the earlier part of this decade in which a Wall Street strategist did an analysis of what US companies produced abroad. He found that the GDP of all US company's foreign subsidiaries would be equivalent to the 3rd or 4th largest economy in the world. When someone compares this figure of $2 to $3 trillion of GDP produced by US-companies abroad each year, the 2005 trade deficit of $724 billion does not look big at all. It looks like the global market has evaluated the US trade deficit a lot better than talking heads and pontificating tenured professors.