There’s No Such Thing as a Trade Deficit

Concerned with how trade is commonly discussed, Greg Mankiw recently issued a plea to journalists to halt the use of subjective terms to describe trade flows. Rather than words such as “deteriorated” or “improved,” the Harvard economics professor (and noted textbook author) proposes that writers employ more objective language such as “the trade balance moved towards surplus.”

Mankiw’s plea is fine as far as it goes, but it probably doesn’t go far enough. The problem in the way trade is discussed lies not only in the descriptions applied, but the nouns themselves.

To speak of trade surpluses or deficits is utterly nonsensical, or at the very least a corruption of the term “trade” that incorrectly uses it as a synonym for “exports.” Trade, however, comprises both selling and buying, both exports and imports. The amount of trade between two countries (or any other group of entities) is the sum of their exports and imports. Given that both sides engage in the same amount of bilateral trade—that is to say, the same total of exporting and importing—a trade deficit is a mythical beast and logical impossibility. Perhaps we can speak of net exports or net imports, or export deficits and import surpluses as well as their reverse, but “trade deficit” should be regarded as a term devoid of real meaning.

Talk of a trade balance either being in surplus or deficit is problematic for similar reasons. Occasionally, one may encounter the descriptor “positive” applied to the trade balance if exports exceed imports and “negative” if the opposite occurs. But—as with trade deficits and surpluses—this is completely arbitrary. It makes no more sense to say this than to characterize a surplus of imports as positive or exports exceeding imports as negative.

This is no exercise in pedanticism. Precision of language is important. Terms matter, and the way in which trade is discussed influences how it is perceived. One can’t help but wonder how many people have an irrational fear of imports because they are said to contribute to a “trade deficit” or a “negative trade balance”—terms laden with unfavorable connotations. It’s not difficult to imagine that U.S. trade policy would be on a very different trajectory if President Trump spent his formative years in a world that did not speak of trade deficits and instead used more exact language and terms.

It may be too late for Trump, but a change in terminology could go a long way toward improving the conversation around trade and clearing the path for better policy.