LETTERS TO THE EDITOR: More free trade agreements

OPINION:

In his op-ed “Facing the facts about trade and immigration” (Web, July 4) Peter Morici unfortunately obfuscates rather than elucidates economic theory. He claims that past trade deals have created the large U.S. trade deficit, but the opposite is true.

The United States runs a trade surplus in goods and services with its free-trade-agreement partners, and it has no deals whatsoever with its largest-deficit countries, China and Germany. More fundamentally, the trade deficit is simply an accounting reflection of a country’s saving and investment behavior. Because American businesses and consumers demand far more than they produce for themselves, the United States must import the difference and spend more than it saves.

Because we can import goods cheaply from abroad, this shortfall is said to be “financed by foreigners” as we get the goods we want while other countries get U.S. dollars. Moreover, foreign countries heavily invest those dollars back into the U.S. through foreign direct investment, strengthening U.S.-based businesses and supporting jobs. This explanation spells a happier reality on trade. Far from losing from rigged trade deals, America enjoys what economists call an “exorbitant privilege.”

Mr. Morici also claims that cutting the trade deficit in half would substantially boost gross domestic product growth. Here he repeats a common but incorrect belief that imports are a “drag” on GDP growth. Do not be deceived. Imports are actually not counted in gross domestic product at all, since GDP measures final goods and services produced within a country in a given year.

As Milton Friedman argued, the benefits from trade experienced by wealthy countries such as the United States derive from its imports. And quite contrary to Mr. Morici’s claim, history consistently shows that the trade deficit widens in times of strong GDP growth, as it is doing now, and contracts during recessions. No one would favor triggering a recession just to reduce the trade deficit.

The best way to boost GDP growth is to boost exports, which would tend to rebalance the trade deficit along the way. And the best way to boost exports is to sign more, not fewer, free trade agreements.

BRANDON WHITEHILL

Washington