If
you’re a business person in Los Angeles, you’ve got plenty to worry
about. Your sales may be poky, your taxes may go up, and in just a few
short weeks, Lindsay Lohan will be released from jail and driving on
our streets again.
But here’s something you don’t have to worry about: the international trade deficit.
In fact, I’ll go further: You might even take some comfort in our deepening trade deficit.
I know. I know. That’s exactly the opposite message you got reading all
those alarming articles after the U.S. Commerce Department reported
that the trade deficit "worsened" in May.
The Wall Street
Journal, for example, called the widening deficit "an imbalance that is
weighing on the tepid economic recovery."
If you read the
report itself, you’d see that U.S. exports increased while imports
increased even faster. In other words, foreigners are buying more of
our stuff. And we’re buying other people’s stuff even faster.
Maybe it’s an outdated notion, but I always thought it was a sign of a
strengthening economy when people start buying more stuff. And the fact
that Americans are buying even more stuff than those in other countries
means that our economy is strengthening faster.
Look, there’s
a longstanding and ongoing debate about whether trade deficits are good
or bad. And that debate can get wonky real fast. But one side believes
that as long as trade deficits are at reasonable levels and result from
free trade, there’s nothing at all wrong with them. The other side
believes trade deficits can be used to scare people into supporting
protectionist trade policies.
A trade deficit can be a great
sign. It means your economy is producing so much wealth it can afford
to be a net importer. Similar to how the wealthiest person on your
block can buy the nicest things, the strongest economies in the world
can buy more stuff.
If you don’t think trade deficits are a
good sign, please look at the accompanying chart. It shows the annual
trade deficits over the last 30 years with the recessions overlaid. Ask
yourself this question: Why are the U.S. trade deficits at their
deepest – or the "worst," if you believe the deficit fear mongers – in
the years when the economy is at its best?
Foreign trade is
particularly important for Los Angeles, given that the country’s two
biggest ports are here, and an increasing flow of goods is beneficial
to the local economy. (In a bit of irony, the Los Angeles Times article
lamenting the trade deficit report lon July 14 was next to another
article about how activity at the ports has picked up so much they had
to hire temporary workers.)
The overall economy is weak and
there are plenty of things for you to worry about, but the trade
deficit is not one of them. Buckle up. Drive carefully.