Matt Grudnoff
Senior Economist
Let’s break down what a trade deficit and surplus is. A trade deficit means that a country buys more stuff from another country than that country buys from them. A surplus is the opposite. The reason that Trump seems weirdly obsessed with getting rid of trade deficits, seems to revolve around that fact that the word deficit has negative connotations.
But deficit is not a negative. It just means I like buying stuff from you. I have a trade deficit with my local supermarket. Why? Because I buy stuff from them, and they buy nothing from me. I equally have a trade deficit with all the shops I use. The only place I don’t have a trade deficit with is my employer. I sell them my labor and they don’t sell anything to me.
If I wanted to, I could stop buying stuff from the supermarket or other shops. I could grow my own food. I could make my own furniture. I could cut my own hair. I could provide my own medical care.
If I did this, I would reduce the trade deficit I had with lots of different places. Of course, I would need to spend lots more time on all these things. I wouldn’t be able to sell anywhere near as much labour to my employer. In fact, I would probably have to quit my job entirely.
I’m also not very good at growing food. I’m not good at building furniture. Or cutting hair. Or providing medical care. And because I quit my job, I wouldn’t have an income coming in.
I would end up with poorer quality goods and services and less of them.
Would I be better off. No way.
But I would have zero trade deficits.