Title: The Benefits of Free Trade: Addressing Key Myths | Mercatus Center
Headings: The Benefits of Free Trade: Addressing Key Myths
The Benefits of Free Trade: Addressing Key Myths
The Truths of Free Trade
Myth vs. Reality

Content: US trade deficits are bad for Americans. Reality: US trade deficits generally are good for Americans. The trade deficit is not debt. A growing trade deficit, despite its misleading name, is good for the economy. It is typically a signal that global investors are confident in America’s economic future. The US trade deficit might be larger than it would otherwise be if a trading partner chooses to keep the price of its currency artificially low, but this practice harms the trading partner, not the United States. America’s trade deficit increases whenever non-Americans choose to increase the amount they invest in the United States. Dollars that leave the United States as part of the trade deficit must come back as a “capital account surplus”—that is, the net investment funds flowing into the United States. More investment means expansion of existing businesses, more new businesses, higher worker productivity, and more output-enhancing activities, such as research and development, all of which increase prosperity.