If you’re a business person in Los Angeles, you’ve got plenty to worry about. Your sales may be poky, your taxes may go up, and in just a few short months, Lindsay Lohan will be released from jail and driving on our streets again.
But here’s something you don’t have to worry about: the international trade deficit.
In fact, I’ll go further: You might even take some comfort in our deepening trade deficit.
I know. I know. That’s exactly the opposite message you got last week reading all those alarming articles after the U.S. Commerce Department reported that the trade deficit “worsened” in May.
The Wall Street Journal, for example, called the widening deficit “an imbalance that is weighing on the tepid economic recovery.”
If you read the report itself, you’d see that U.S. exports increased while imports increased even faster. In other words, foreigners are buying more of our stuff. And we’re buying other people’s stuff even faster.
Maybe it’s an outdated notion, but I always thought it was a sign of a strengthening economy when people start buying more stuff. And the fact that Americans are buying even more stuff than those in other countries means that our economy is strengthening faster.
Look, there’s a longstanding and ongoing debate about whether trade deficits are good or bad. And that debate can get wonky real fast. But one side believes trade deficits can be used to scare people into supporting protectionist trade policies. The other side believes that as long as trade deficits are at reasonable levels and result from free trade, there’s nothing at all wrong with them.
In fact, a trade deficit can be a great sign. It means your economy is producing so much wealth it can afford to be a net importer. Similar to how the wealthiest person on your block can buy the nicest things, the strongest economies in the world can buy more stuff.
If you don’t think trade deficits are a good sign, please look at the accompanying chart. It shows the annual trade deficits over the last 30 years with the recessions overlaid. Ask yourself this question: Why are the U.S. trade deficits at their deepest – or the “worst,” if you believe the deficit fear mongers – in the years when the economy is at its best?
Foreign trade is particularly important for Los Angeles, given that the country’s two biggest ports are here, and an increasing flow of goods is beneficial to the local economy. (In a bit of irony, the Los Angeles Times article lamenting the trade deficit report last Wednesday was next to another article about how activity at the ports has picked up so much they had to hire temporary workers.)
The overall economy is weak and there are plenty of things for you to worry about, but the trade deficit is not one of them. Buckle up. Drive carefully.
Charles Crumpley is editor of the Business Journal. He can be reached at firstname.lastname@example.org.