Here’s a Letter to the Editor I sent the WSJ in response to Joseph Sternberg’s article on the Trippen dilemma:
Dear Editor,
Mr. Sternberg has beautifully dismantled the defunct Trippen “dilemma” ("The Defunct Economist Who Shapes Trump’s Trade Policy,” August 21, 2025). However, he joins the chorus of people who fundamentally misunderstand trade deficits. In truth, trade deficits do not need to be “financed” because they are not owed to begin with. Consider the grocery store - every week my family and I purchase groceries using dollars. We sell nothing to the grocery store whatsoever. We, like so many other Americans, therefore run a trade deficit with the grocery store to the tune of thousands of dollars per year. But what is there for us to finance? Pointing out that the grocery store is domestically owned obviates nothing.
The reality is that trade deficits are easily the most misunderstood concept in all of economics. They exist because of a quirk in how we determine GDP. Calculating total production by tabulating total spending necessarily includes the spending we do on foreign goods. We cannot count foreign produced goods toward domestic production just as I cannot count the food I purchase toward my personal production. To correct for this, we subtract the spending we do on imports.
The fact is that with trade deficits, there is nothing to finance. Importers have already paid for the goods (and the associated tariffs) just as I have already paid for my groceries.