What imbalance?
"The U.S. runs an annual trade deficit of about $600 billion, or 4 percent of our entire economy. Eliminating that imbalance would create three million to four million jobs, according to Commerce Department estimates, at no cost to the budget."
Here are two of my comments:
1. There really is no trade "imbalance" once we take into account the fact that an annual "trade deficit" of $600 billion is exactly offset by a "capital account surplus," "capital inflow," or "foreign investment surplus" of $600 billion. The chart above shows that America's annual "trade deficits" have been balanced every year with offsetting capital inflows, and since 1980 America has benefited by a cumulative $8.1 trillion "foreign investment surplus." Because there is no real "trade imbalance" to bring into balance, it's unlikely that any correction to a fictional imbalance would create any new jobs.
2. The only way to eliminate the $600 billion trade deficit would be to simultaneously eliminate the $600 billion foreign investment surplus. With the elimination of hundreds of billions of dollar of foreign investment that likely helps create jobs, why would we expect a net job increase?
As Don Boudreaux points out, if Americans purchase $1 million of Chinese textiles, that $1 million comes back into the U.S. either to purchase: a) $1 million worth of American goods and services, or b) $1 million of American assets (stocks, bonds, real estate, direct investment in U.S. firms, etc.).
Apparently, C. Fred Bergsten assumes that the $1 million spent on American goods supports or creates U.S. jobs, while the $1 million spent on U.S. assets does nothing for U.S. jobs. That's nonsense. The $1 million invested in the U.S. to purchase American assets might create more jobs in the long run than the $1 million spent on American goods. In any case, the simple fact that there is no "trade imbalance" to start with once we account for spending on both goods and financial assets, implies that eliminating a "fictional imbalance" won't have any effect at all on U.S. employment.
Update: In the study "The Trade-Balance Creed," Dan Griswold of the Cato Institute found the following historical relationship between trade deficits and jobs:
"Trade deficits are routinely blamed for job losses, yet civilian employment grew a healthy 1.4 percent annually during periods of rising trade deficits while job growth was virtually zero during those periods when the deficit was declining. Ditto for the unemployment rate. The jobless rate ticked down 0.4 percentage points per year on average when the trade deficit was on an upward trend, and jumped a painful 1.0 point per year when the trade deficit was shrinking. In four of the five periods in which imports did outpace exports, the unemployment rate fell, and in every period in which imports grew more slowly than exports, or fell more rapidly, the unemployment rate rose."
Apparently, C. Fred Bergsten assumes that the $1 million spent on American goods supports or creates U.S. jobs, while the $1 million spent on U.S. assets does nothing for U.S. jobs. That's nonsense. The $1 million invested in the U.S. to purchase American assets might create more jobs in the long run than the $1 million spent on American goods. In any case, the simple fact that there is no "trade imbalance" to start with once we account for spending on both goods and financial assets, implies that eliminating a "fictional imbalance" won't have any effect at all on U.S. employment.
Update: In the study "The Trade-Balance Creed," Dan Griswold of the Cato Institute found the following historical relationship between trade deficits and jobs:
"Trade deficits are routinely blamed for job losses, yet civilian employment grew a healthy 1.4 percent annually during periods of rising trade deficits while job growth was virtually zero during those periods when the deficit was declining. Ditto for the unemployment rate. The jobless rate ticked down 0.4 percentage points per year on average when the trade deficit was on an upward trend, and jumped a painful 1.0 point per year when the trade deficit was shrinking. In four of the five periods in which imports did outpace exports, the unemployment rate fell, and in every period in which imports grew more slowly than exports, or fell more rapidly, the unemployment rate rose."
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