The Trade Collapse | Richard W. Rahn | Cato Institute: Commentary

The Trade Collapse | Richard W. Rahn | Cato Institute: Commentary: "If the U.S. trade deficit were to disappear, do you think that would be a good or bad thing? For years, many in the media and the political world wailed about the U.S. trade deficit, but it is rapidly disappearing — and the consequences are going to be disastrous.

The table shows the U.S. trade deficit dropped 52 percent between January and May of this year, as compared to the January-through-May periods of the two previous years. During the same interval, exports of goods and services dropped 19 percent and imports dropped 28 percent. The U.S. trade deficit might disappear within the next year.

Over the past several decades, many foreign countries — notably Japan and China — exported much more to the United States than they imported, and as a result, they accumulated several trillion U.S. dollars. Most of those dollars were, in turn, invested back in the United States. Foreign individuals, companies and governments bought U.S. government securities. They invested money in U.S. real estate, often spending funds to renovate old hotels and shopping centers. They invested money in the U.S. stock market and in new high-tech start-ups."

"When trade expands because of fewer trade barriers and growing global demand, it is a win-win situation for both exporters and importers. The world's consumers have access to more goods and services at lower prices (which means they have a rise in their real incomes), and the world's producers have many more customers and thus are able to expand production and create jobs."

Criton M. Zoakos, noted: "In Europe, the U.S. and Japan, massive financial bailout programs ... have committed approximately $35 trillion of public funds to support financial asset prices at pre-crisis levels. ... All of these governments won initial public approval for these stupendous bailout commitments by claiming that they were needed to restore credit flows to 'businesses and households' and save jobs. However, the fact is that nine months after approval of these plans, and the commitment of $35 trillion, lending to non-financial businesses and to households has declined in the United States (by 5.5 %), Britain (by 5.6%), Eurozone (by 0.4%) and Japan (by 3.4%)."