Another Open Letter to Oren Cass

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Here’s another open letter to Oren Cass.

Oren Cass
American Compass

Oren:

I hope this email finds you well.

During a recent event at Harvard’s Kennedy School, you repeated your argument that “trade can be a wonderful thing if the trade is balanced, if we are trading with other countries that are committed to both buying and selling and therefore give us the opportunity to buy and sell” (“How the Trump administration is shaping world trade,” December 3). Your implication, of course, is that U.S. trade deficits harm America. And because the U.S. has run annual trade deficits for each of the past 50 years, in your view trade over these many decades for America has on net been a bad thing.

I’ve two questions.

First, why do you continue to describe America’s trade as being unbalanced? U.S. trade deficits (more precisely, current-account deficits) are matched by U.S. capital-account surpluses. These net inflows into the U.S. of capital balance out U.S. trade deficits. Because international commercial accounting is designed to have both accounts – the current account and the capital account – considered together, why do you ignore the capital account? After all, only by ignoring the capital account can you describe U.S. trade as being unbalanced.

Second, your belief that we Americans benefit from international trade only when foreigners buy from us as much as we buy from them means that you believe that we benefit from trade only when foreigners refrain from saving and investing any of their export-sales proceeds in order to spend all of these proceeds on American exports. Do you, then, also believe that domestic trade works well for us Americans only when each of us refrains from saving and investing any of what we earn when trading with each other in order to spend all of what we earn?

Asked differently, if, as you imply, we are harmed when foreigners save and invest in America, do you also believe that we are harmed when Americans save and invest in America? If not, why not? And also if not, can you identify the forces that make investment in America by people living in, say, Canada and South Korea economically harmful to us in ways that investment in America by people living in, say, Kansas and South Carolina are not economically harmful to us?

I don’t see why the nationalities of savers and investors matter economically. You, in contrast, apparently do. What am I missing?

Sincerely,
Don

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