May 11, 2017


The U.S. Chamber of Commerce appreciates the opportunity to present the following comments to the Department of Commerce and the Office of the U.S. Trade Representative as they prepare the “Omnibus Report on Significant Trade Deficits” pursuant to Executive Order 13786 of March 31, 2017. The Chamber is the world’s largest business federation, representing the interests of more than three million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations, and it is dedicated to promoting, protecting, and defending America’s free enterprise system.

The Trade Deficit as a Gauge of Trade Policy

To begin, it is useful to distinguish between the macroeconomic dimensions of trade deficits and the costs of foreign trade barriers. The Chamber firmly agrees with the executive order’s statement that “unfair and discriminatory practices by our trading partners can deny Americans the benefits that would otherwise accrue from free and fair trade, unduly restrict the commerce of the United States, and put the commerce of the United States at a disadvantage compared to that of foreign countries.” As the Chamber has often argued, such barriers are costly to U.S. workers, farmers, and companies in a variety of ways, and they are a legitimate focus of U.S. policymakers. The concluding section of these comments points to some resources from the Chamber and elsewhere on foreign trade barriers.

However, the Chamber disagrees with the contention that the goods trade deficit is an appropriate gauge of whether a particular set of trade policies—or trade agreements—is delivering benefits to the American people more broadly. It would be mistake for the forthcoming report to assume a link between the U.S. trade deficit and U.S. employment.

The Chamber agrees with the vast majority of economists who argue that “foreign import barriers and exports subsidies are not the reason for the US trade deficit,” as Martin Feldstein, who chaired President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984, recently wrote.1 He summarizes:

The real reason is that Americans are spending more than they produce. The overall trade deficit is the result of the saving and investment decisions of US households and businesses. The policies of foreign governments affect only how that deficit is divided among America’s trading partners.

In balance of payments accounting, a country with a current account deficit (of which a trade deficit is usually the largest component) must by definition have a capital account surplus of identical value. The current account records trade in goods and services and net earnings on foreign investments. The capital account records international investments themselves (as opposed to earnings on them), both inbound and outbound, and a capital account surplus means the United States is a net importer of saving from abroad.

The full text is available here.