Want to rev up the economy? Don't worry about the trade deficit.

Want to rev up the economy? Don't worry about the trade deficit.

This article talks about the concept that was learned in class a few months ago.  Essentially, President elect Trump intends to remove the trade deficit, because the thinking is that this will improve GDP as well as lower the unemployment rate.  The logic behind that end goal is that domestic spending would increase leading to higher GDP and lower unemployment.  But as we know, it is not that simple.  If the US intends to remove the trade deficit (in the manner that Trump talked about in his campaign with tariffs), it could potentially be bead for the economy.  The US dollar would appreciate, and less foreigners would buy our products.  This would lower output which is the opposite of the specified goal.  The article also backs up this idea with the fact that foreign investment in US capital assets has increased from $2.5 trillion in 2010 to the $8 trillion that it is today.  If the dollar appreciated, that number would surely decline.  The article suggests that the situation that the US has found itself in is not necessarily as bad as people make it out to be.  It is difficult to say whether this is a true statement or not, but there is certainly room to interpret.

http://www.nytimes.com/2016/12/02/upshot/want-to-rev-up-the-economy-dont-worry-about-the-trade-deficit.html?ref=economy