In an excellent essay titled "The 'Trade Deficit': Defective Language, Deficient Thinking," George Mason economists Don Boudreaux and Daniel Klein expose the widespread misguided and sloppy thinking about the term "trade deficit" that has seen a recent resurgence, thanks in large part to the Protectionist/Mercantilist-in-Chief Donald Trump. Here's an excerpt:
If imports exceed exports, as they have done for decades in the United States, then, on net, more dollars leave the United States by Americans' purchases of imports than come in by Americans' sales of exports. Such a situation is termed a current-account deficit, or "trade deficit." But the terminology could just as well be formulated the other way around, in a framework of husbanding stuff. Then, under the same condition of imports exceeding exports, the focus is on the stuff that, on net, is flowing into the United States. Now we view the exact same world but see a surplus. Instead of looking at matters as the conventional language does, we might call this new view the in-kind account. What in the conventional view is a "trade deficit" is in the in-kind view an "in-kind surplus."
President Trump promises Americans "good trade deals." But isn't it a good trade deal for Americans to get stuff from abroad, to use and enjoy, in an amount larger than the value of the stuff that Americans give up? That is an in-kind surplus! But Trump and others prefer to call it a trade deficit.
Our point is that we can use an inverse, stuff-husbanding framework to create parallel terminology that transposes deficits and surpluses. In the stuff-husbanding framework, Americans today have an in-kind surplus and a capital-stuff deficit.
Trade deficit" is one of those language traps that we've sadly fallen into. It is defective language that spawns deficient thinking. Only by recognizing the defectiveness of the term "trade deficit" can we hope to reduce the damage.
Thinking for yourself means not letting yourself be brow-beaten by language. When you hear people use "trade deficit," recognize its defectiveness, and disdain it accordingly.
It's an excellent and very important point to realize that if you think about America's "trade deficit" and look carefully at "who, on net, ends up with the most stuff (goods)" you'd conclude that what is typically and pejoratively called a "trade deficit" is actually a "stuff surplus." That is, if you look at who ends up with the most stuff from international trade on net, America's so-called "trade deficit" last year of $500 billion was actually, and perhaps more accurately, a $500 billion net inflow of goods or a "goods surplus." Specifically, Americans purchased $2.7 trillion worth of goods and services from foreigners, and foreigners purchased $2.2 trillion worth of goods and services from Americans, leading to a $500 billion "goods and services surplus" (or an "in-kind surplus" according to Don and Dan's terminology) for the US when measured in who actually ends up with (and enjoying) the stuff. If anybody is getting "killed" or "crushed" or hosed" from America's trade with the rest of the world, you could make a stronger case that foreigners are the one losing out more than Americans. After all, foreigners use their resources and labor to build washing machines, smartphones, TVs, computers, automobiles, and clothing, but it's Americans who get to enjoy a $500 billion net inflow of those goods that aren't enjoyed by the countries that produced them.
Bottom Line: If you analyze trade correctly by considering who ends up with the most stuff on net, America enjoys a large $500 billion annual net inflow of goods or a "stuff or in-kind surplus." That is an outcome that should be celebrated, not condemned!