More On The Protectionist Canard that U.S. Trade Deficits Drain Americans of Wealth
Here’s an e-mail to a new correspondent.
Mr. K__:
Thanks for your email, and for reading my recent post sparked by Rob Atkinson’s failed attempt to blame “globalists” for Trump’s tariffs.
Among the points I made in that post is this: Powerful evidence against the commonplace claim that U.S. trade deficits drain Americans of wealth is the fact that the inflation-adjusted net worth of the average American household is today at an all-time high and 232% higher than it was in 1975 (the last year America ran an annual trade surplus).
In response, you reasonably ask: “How is average household income relevant? Maybe the average is raised by a few households getting super rich as all others stagnate or decline?”
First, protectionists insist that trade deficits drain America of wealth, implying that these deficits reduce Americans’ real net worth in the aggregate. If protectionists were correct, total aggregate U.S. household real net worth would have fallen over the past 50 years. But it has instead risen. And it rose by so much that, even though the number of households in the U.S. also increased (by 86 percent between 1975 and 2024), the average real net worth of a U.S. household today (2o24) is a whopping 232% higher than it was in 1975. (And, by the way, it’s 140% higher than it was when NAFTA took effect in 1994, and 78% higher than it was in 2001 when China joined the WTO.)
Second, although the data summarized in the previous paragraph are sufficient to disprove the protectionist claim about U.S. trade deficits, if you prefer to look at real median household income, those data, too, refute the protectionists’ canard about trade deficits.
As you can see here, real median U.S. household income in 2023 (the latest year for which I can find data) was less than one percent below the all-time peak it hit in 2019, just before the pandemic. Today (2023), real median household income is 30% higher than it was when NAFTA took effect, and 17% higher than when China joined the WTO. Although the data source linked here goes back only to 1984, even if we assume that there was no change in real median household income from 1975 to 1984 (as this source suggests), real median household income today in the U.S. is 37% higher than it was in 1975.
You might argue that this increase in the real net worth of the median household isn’t impressive – that’s a discussion for another day – but the data nevertheless disprove the protectionist assertion that U.S. trade deficits result in Americans either going further into debt or selling off assets to foreigners. These so-called ‘deficits’ clearly do no such thing.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
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