“Imagine a world with only two countries, and only two products. One country makes cars; the other grows bananas.
People in CarNation want bananas, so they buy $1 million worth from people in BananaLand. Residents of BananaLand want cars, so they buy $2 million of them from CarNation.
That difference is the trade deficit: BananaLand has a $1 million trade deficit; CarNation has a $1 million trade surplus.
But this does not mean that BananaLand is ‘losing’ to CarNation. Cars are really useful, and BananaLanders got a lot of them in exchange for their money.”
Extending Mr. Irwin’s example, if BananaLand did not trade with CarNation, its citizens wouldn’t be spending money on cars — “saving money” in a narrow sense — but they wouldn’t have cars either.
In that same narrow sense, Mr. Trump is right that “without trade, we could have piles of money,” Mr. Lincicome said. “But we’d have no food, clothing, housing, etc. So the money would be worthless, unless you swam in it like Scrooge McDuck or something. Throughout history, autarky means poverty, not wealth.”
Moreover, “when a country runs a trade deficit, there is a countervailing force,” Mr. Irwin noted. The money that other countries gain through trade surpluses with the United States tends to return to this country, in the form of investment. “In effect, the flow of capital is the reverse of the flow of goods,” he wrote.
Mr. Trump’s suggestion of suspending trade with other countries to “save money” also contradicts statements his economic advisers and he himself have made extolling its virtues.
Expanding trade “has played an important role in the development of American prosperity” in the last century, according to the Office of the United States Trade Representative, which adds, “Trade remains an engine of growth for America.”