NCPA - National Center for Policy Analysis

Rising Trade Lifts All Boats

November 14, 2003

Many view a rising trade deficit --the value of imports exceeding exports -- as bad news, signaling that American firms are losing out to foreign competitors. But actually, it is a positive economic indicator, say economists.

Trade deficits generally fall during recessions and rise during economic expansions, and in the third quarter of 2003, U.S. gross domestic product rose at an annual rate of 7.2 percent. Furthermore, France, Germany and the Netherlands report their economies have emerged from recent quarters with little or no growth.

This means Europeans can buy more American products:

  • The United States trade deficit reached a record amount of $41.3 billion in September.
  • U.S. exports rose 2.8 percent to $86.2 billion for the month -- a two and one-half year high.
  • Imports rose an even stronger 3.3 percent to $127.4 billion -- a record amount.

Additionally, the trade deficit shows that the United States remains a popular place for foreigners to invest. That is because, as Bruce Bartlett recently noted, when the United States has a net inflow of investment from overseas, the trade deficit must expand by a similar amount. Foreign investment here exceeded U.S. investment abroad by $2.4 trillion last year.

Source: Editorial, "The U.S. Trade Train," Investor's Business Daily, November 14, 2003.

 

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