Should we be worried about the trade deficit?

As the president has ramped up his tweeting about America’s trade deficit with China and is threatening a trade  war,  it  is important to remember that running a trade deficit is not a terrible thing. As Warren Buffett noted at the recent Berkshire Hathaway shareholder meeting,

“When you think about it, it’s really not the worst thing in the world for someone to send you things you want and you hand them a piece of paper.”

This is especially true if you print the pieces of paper and the Chinese cannot effectively do anything with that paper besides buy US Treasuries with it. Obviously, there are other reasons that a country may want to produce some good/service domestically (instead of importing it), but running a trade deficit in and of itself is not a great reason. Unfortunately, the word deficit has a negative connotation and so I do not expect this perennial political talking point to disappear anytime soon.

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