Does the Commerce Secretary Really Not Understand How a Trade Deficit Works?

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Thursday, 16 December 2010 05:15

It seems that he doesn't from the quote buried at the end of a NYT piece on U.S. trade with China. In reference to the trade deficit, Gary Locke, the Commerce Secretary said:

"The reality is that if we are to close the trade deficit, Americans need to export more and the Chinese need to purchase more."

Actually exports are only half of the story in trade. A trade deficit means that the United States imports more than it exports. Adjusting to more balanced trade almost always means both reducing imports and increasing exports. It is virtually impossible to envision a scenario in which the country moves to anything close to balanced trade without adjustments on both sides.

It is also worth noting that this piece very casually refers to "piracy" in reference to China's lack of respect for U.S. intellectual property claims. In many cases, the unauthorized copies of U.S. products may not violate current Chinese law. In such cases there is no piracy involved. 

It also would have been wort mentioning that enforcement of U.S. intellectual property claims will impose substantial costs on Chinese consumers and is likely to sharply slow growth by reducing their purchasing power.