Join our community of smart investors

Why trade deficits are a sign of strength

The Squeeze: Protectionists say deficits are bad for the economy, but they are just a symptom of growth
Why trade deficits are a sign of strengthPublished on December 3, 2024

The argument in favour of tariffs is that having a large trade deficit is bad. The logic being that if a country is importing lots of goods from abroad, that means it must also be exporting jobs to foreigners.

In some ways, the simplicity of this argument is compelling. It is presumably why Donald Trump made it such an important part of his campaign messaging. Just before the election, in an interview with Bloomberg, he told his supporters we would “bring the companies back”, promising them “we're going to protect those companies with strong tariffs because I'm a believer in tariffs”.

Under this logic you would expect there to be some positive correlation between the trade deficit and unemployment. In other words, as the trade deficit increases, unemployment would be expected to rise because more jobs were being exported.

This is subscriber only content
Start your trial to keep reading
PRINT AND DIGITAL trial

Get 12 weeks for £12
  • Essential access to the website and app
  • Magazine delivered every week
  • Investment ideas, tools and analysis
Already a subscriber? Sign in