Wake Up GOP, 'Trade Deficits' Are a Beautiful Feature of Global Markets

Slowly but surely, the Republican Party is abandoning its long-time support for free trade and open markets. Increasingly, this shift comes under the cover of addressing a supposed short-term problem - the large annual U.S. trade deficit. There are two problems with this position: The trade deficits are not short-term, and they are not a problem.

Trade deficits are not a bug, they are a feature of global markets. They only serve as proof of prosperity. When people are buying a lot of goods and services, it is because they can afford to. Governments do not trade with each other, people do. Anyone who wants to impose a balance from above is only undermining our ability to make the best decisions for ourselves.

The commitment to free trade has been a linchpin of Republican thought since World War II. What makes free markets work is the fact they are the sum of millions of decisions made every day by individuals, rather than by governments. Support for limited government depends on support for unlimited trade.

That is why it is so dispiriting to see more and more Republicans shift away from free trade to protectionism, a first step to statism.

This reversal is not just articulated by Fox News talking heads like Tucker Carlson and Laura Ingraham, who spout economic nationalism night after night. It has entered into the public statements of long-time free traders.

Vice President Mike Pence, for example, justified a dirigeste attempt to impose governmental will on the makers of Carrier air conditioners by expressing impatience with trade deficits, and equating them with some kind of market failure. As he put it: “The free market has been sorting it out and America’s been losing.”

Market enthusiast Larry Kudlow has similarly embraced the need for a trade “fix” since becoming chief economic adviser at the White House. As he put it in supporting tariffs on China, there is a need to “kick some butt” to remedy what he called “unbalanced trading relationships.”

The erstwhile free traders have been trying to disguise their ideological retreat by claiming it is a temporary one necessary to address the large trade surpluses registered regularly by China and other countries.

But that is not trying to somehow make the free market work better; it is striking at its heart. Government should refrain from protecting its industries for the same reason it should limit its involvement in the domestic economy - the most efficient means of creating wealth is by getting out of the private sector’s way.

Republicans have traditionally known that trade deficits are not a sign of a weak economy; if anything, they are a sign of a strong one. The prosperity of the Reagan era was accompanied by burgeoning trade deficits. The United States came the closest it has to a trade surplus since the 70s in 2009 - when the country was in the midst of the Great Recession. Which economy would you rather have, the 1970s model or the Reagan decade?

Republican thinkers have traditionally understood that U.S trade transactions in goods and services with the rest of the world are just part of its balance of payments. A trade deficit generally prompts a financial account surplus, as financial capital and investment flow into the country.

Republicans have traditionally understood that trying to reduce a trade deficit is at best a pointless exercise, because all that imports to the United States represent is Americans freeing themselves of some tasks in order to pursue more profitable ones. If the United States was able to reduce imports by replacing some imported goods with domestic ones, Americans would have to stop producing some of the things they currently produce. Capital would shift to making goods and services others make for us - and shift away from the goods and services we produce in their stead.

Republicans have traditionally understood that the problem is never one of a shortage of jobs; rather, it is a shortage of skilled people to perform the tasks we want and need to be performed.

In giving up their traditional support for free trade, Republicans are undermining their support for limited government. If government seeks to steer an economy, it has to plan it. If government action is justifiable to “save” one industry, why isn’t it justifiable - or even necessary - for government to “save” all industries?

In trying to claim that tariffs are a temporary measure aimed at getting the economy back in balance, many Republicans are simply trying to solve a problem that doesn’t exist - and risk giving birth to a top-down economy that would undermine both their principles and their nation’s prosperity.