{"id":164,"date":"2025-06-20T08:02:36","date_gmt":"2025-06-20T12:02:36","guid":{"rendered":"https:\/\/people.bsu.edu\/econbriefs\/?p=164"},"modified":"2025-06-20T08:02:36","modified_gmt":"2025-06-20T12:02:36","slug":"if-it-aint-broke-rethinking-u-s-trade-imbalances-by-dr-cecil-bohanon-and-dr-john-horowitz","status":"publish","type":"post","link":"https:\/\/people.bsu.edu\/econbriefs\/2025\/06\/20\/if-it-aint-broke-rethinking-u-s-trade-imbalances-by-dr-cecil-bohanon-and-dr-john-horowitz\/","title":{"rendered":"If It Ain\u2019t Broke: Rethinking U.S. Trade Imbalances \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz"},"content":{"rendered":"<p><em>Originally written on 4\/11\/2025<\/em><\/p>\n<p><span data-contrast=\"auto\">Our last column reported that the US has run a current account deficit, or in popular parlance, a trade deficit with the rest of the world since 1975. A trade deficit means the US has run a capital account surplus over the same time frame. A US capital account surplus indicates investment is flowing into the US from the rest of the world to buy dollar-denominated assets. America\u2019s erratic trade policy is based on the notion that this persistent current\/capital account imbalance is the source of all kinds of economic problems for the US, and tariffs are the best remedy.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">So, has fifty years of trade imbalances generated economic harm to the US? At the plenary session of the Association of Private Enterprise Education meeting earlier this month, George Mason University Professor Don Boudreaux argued, in our opinion, quite convincingly that they have not. A common claim is that trade deficits have \u201chollowed out\u201d US manufacturing capacity and reduced US manufacturing output and employment, weakening our ability to respond to national security crises.\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">That US manufacturing capacity and output have declined is fake news. US manufacturing capacity and output have increased since 1975, though manufacturing employment has decreased as workers become more productive. According to the Federal Reserve, US Industrial Capacity is <\/span><a href=\"https:\/\/fred.stlouisfed.org\/series\/CAPB50001S\"><span data-contrast=\"none\">2.44<\/span><\/a><span data-contrast=\"auto\"> times larger in 2025 than in 1975. Adjusted for population, US industrial capacity is 1.54 times larger. Similarly, US Industrial Production is <\/span><a href=\"https:\/\/fred.stlouisfed.org\/series\/INDPRO\"><span data-contrast=\"none\">2.46<\/span><\/a><span data-contrast=\"auto\"> times larger in 2025 than in 1975. Adjusted for population, it is 1.56 times larger. It is a myth that our overall productive capacity has been shrinking and that we no longer produce industrial output.\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Another common claim is that the persistent US capital account surplus has led to foreigners buying up most of the assets in our country. In other words, a generation of bad trade policies and profligate American consumers have sold off the farm to foreigners, to whom we are increasingly beholden. Professor Boudreaux argued that if that were true, American households&#8217; inflation-adjusted net worth would be less today than in 1975. The inflation-adjusted net worth of USA households and non-profits is 2.32 times more than in 1975 and 1.47 times more per capita.\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Politicians claim that US industrial capacity and output have declined and that US consumers\u2019 net worth is declining are false. US industrial capacity and production have been increasing, and US consumers are, on average, more prosperous than in 1975. If it ain\u2019t broke, don\u2019t fix it.\u00a0\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Originally written on 4\/11\/2025 Our last column reported that the US has run a current account deficit, or in popular parlance, a trade deficit with the rest of the world since 1975. A trade deficit means the US has run a capital account surplus over the same time frame. A US capital account surplus indicates [&hellip;]<\/p>\n","protected":false},"author":112,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[85],"tags":[1564,1219,1568,1277,1565,1567,1569,1547,1062,1318,1271,268,1566],"class_list":["post-164","post","type-post","status-publish","format-standard","hentry","category-macroeconomics","tag-capital-account-surplus","tag-economic-history","tag-economic-myths","tag-economic-policy","tag-foreign-investment","tag-industrial-output","tag-net-worth","tag-productivity","tag-tariffs","tag-trade-deficit","tag-trade-policy","tag-us-economy","tag-us-manufacturing"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.6 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>If It Ain\u2019t Broke: Rethinking U.S. Trade Imbalances \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/people.bsu.edu\/econbriefs\/2025\/06\/20\/if-it-aint-broke-rethinking-u-s-trade-imbalances-by-dr-cecil-bohanon-and-dr-john-horowitz\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"If It Ain\u2019t Broke: Rethinking U.S. Trade Imbalances \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs\" \/>\n<meta property=\"og:description\" content=\"Originally written on 4\/11\/2025 Our last column reported that the US has run a current account deficit, or in popular parlance, a trade deficit with the rest of the world since 1975. 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