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Open Letter to Jared Bernstein

Tuesday, November 29, 2016 14:25
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(Don Boudreaux)


Mr. Jared Bernstein
Center on Budget and Policy Priorities

Mr. Bernstein:

In your Washington Post essay “A proposal to the incoming administration to lower the trade deficit” (Nov. 28) you simply assert that the U.S. trade deficit is “a significant drag on growth and manufacturing jobs.”  Because you devote not a single word to explain why you believe this assertion to be correct, you clearly suppose that it is too obvious for words that the U.S. trade deficit harms the American economy.  Yet as you must know, for America to run a trade deficit with non-Americans is for America to receive a net inflow of capital from non-Americans.  In light of this reality, I’ve a few questions for you about a number of transactions, each of which causes the U.S. trade deficit to swell:

– Does the building of stores throughout America by Ikea, Sony, and other non-American companies impose “a significant drag on growth” in the U.S.?  If so, how?

– Did the $7.1 billion spent by Shuanghui International to buy Smithfield Foods impose “a significant drag on growth” in the U.S.?  If so, how?

– Was the $15.6 billion that the British-Swiss firm AstraZeneca paid a decade ago for Maryland-based MedImmune “a significant drag on growth” in the U.S.?  If so, how?

– When Japan-based Softbank bought the ailing Kansas-based Sprint for $21.6 billion, was there a resulting “significant drag on growth” in the U.S.?  If so, why?

– According to a June 2014 report from Brookings, “Jobs in FOE’s [foreign-owned enterprises in America] are relatively concentrated in manufacturing and advanced industries.”  How do you square this fact with your implication that such investments are “a significant drag on growth and manufacturing jobs” in the U.S.?

Some final questions: If non-Americans come to be led, as you wish, by U.S. Government policy to invest less in America, do you believe that the resulting decline in the value of U.S. corporate shares, the decline in the value of American real estate, and the decreased sharing by non-Americans of the burden of financing Uncle Sam’s budget deficits, will enrich Americans and cause American economic growth to accelerate?  If so, why?

Unless and until you can plausibly answer questions such as these – questions the significance of which, frankly, you seem to be unaware – you should stop offering advice about trade policy.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030


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