Plumbing America’S Balance of Trade

29 Pages Posted: 7 Jun 2018

See all articles by Daniel T. Griswold

Daniel T. Griswold

Mercatus Center at George Mason University

Date Written: 03/14/2017

Abstract

By focusing only on the trade deficit, critics miss the full economic benefits of a more open American economy. This paper provides original analysis of the total inflow and outflow of dollars through numerous “pipes” that make up the plumbing of US commerce with the rest of the world. It explains how underlying macroeconomic factors determine the size and direction of America’s trade balance, why bilateral deficits with trading partners do not indicate a failure of US trade policy, and why efforts to employ trade policy to fix the overall trade deficit or bilateral deficits would be futile and self-damaging. Among the key policy conclusions: America’s net positive inflow of capital year after year indicates the continuing attractiveness of the United States as a destination for foreign investment; imports benefit US consumers as well as producers; and direct foreign investment abroad by US companies is not primarily a platform for importing goods and services back to the United States but for expanding sales to foreign customers.

Suggested Citation

Griswold, Daniel T., Plumbing America’S Balance of Trade (03/14/2017). MERCATUS RESEARCH, Available at SSRN: https://ssrn.com/abstract=3191516 or http://dx.doi.org/10.2139/ssrn.3191516

Daniel T. Griswold (Contact Author)

Mercatus Center at George Mason University ( email )

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