Dear NY Times: Shrinking Trade Deficit is Bad News

Published: 1/14/2009 9:00 AM ET

Editor, The New York Times

229 West 43rd St.

New York, NY 10036

To the Editor:

Reporting on the recent fall in America's trade deficit, you quote Barclay's Capital economist Julia Coronado's claim that "It's still a pretty sizable trade deficit, but it's going in the right direction" ("Sharp Drop in Oil Price Helps Shrink Trade Deficit," Jan. 14).

Doubtful, especially because this trade-deficit decline was caused, not by a rise in American exports, but by a disproportionately large fall in American imports. Given that in recent decades foreigners consistently pumped significant portions of their dollar earnings back into the U.S. economy as investment funds – and given that fewer American imports means reduced dollar earnings by foreigners – this fall in America's trade deficit is a movement in the WRONG direction, for it signals reduced investment in the American economy.

Sincerely,

Donald J. Boudreaux

Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser.

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