Why Trade Deficits Don't Matter

What happens when one country’s imports consistently exceed its exports, creating a deficit in the international balance of trade? There is probably no greater misunderstanding about the real nature of wealth than when a discussion turns to the balance-of-trade question. Henry Hazlitt, author of Economics in One Lesson explained this phenomenon when he wrote: … the same people who can be clearheaded and sensible when the subject is one of domestic trade can be incredibly emotional and muddleheaded when it becomes one of foreign trade.” The general consensus seems to be if other countries grow more prosperous we lose, illustrating how zero-sum thinking is endemic to this issue. Join Ed and Ron as they dissect this issue with some common sense economics.