Two months ago, in a guest editorial for MediaNomics, Daniel T. Griswold of the Cato Institute predicted that we would soon hear about increasing U.S. trade deficits, which would be "almost universally reported as grim news," even though trade deficits "are not a sign of unfair trade practices or a lack of American ‘competitiveness.’"

Griswold’s fears have been realized. When the Commerce Department reported on February 19 that the U.S. trade deficit for 1997 had mushroomed, most reporters quickly assumed the worst.

"A sharp deterioration in America’s trade performance in December pushed the deficit for all of 1997 to $113.7 billion, the worst showing in nine years," wrote Associated Press reporter Martin Crutsinger. "For all of 1997, U.S. exports of goods and services climbed 9.9 percent to a record $932.3 billion. But imports were a record as well, rising 9 percent to $1.05 trillion, the first time imports have topped the $1 trillion mark." According to Crutsinger, "The overall deficit was up 2.4 percent from the 1996 imbalance of $111 billion and was the worst showing since $115.9 billion in 1988."

Other reporters repeated Crutsinger’s gloomy foreign trade analysis. Dan Rather, on the February 19 CBS Evening News, announced that "the government says the 1997 U.S. trade deficit was the worst in nine years."

According to reporter Rich Miller, in the February 20 USA Today, "The U.S. trade deficit rose to its highest level in nine years, and experts say the worst is yet to come." And a headline in the business section of that same day’s Washington Post proclaimed the trade deficit to be "Off Balance, And Likely To Get Worse."

But as Cato’s Griswold wrote in the December MediaNomics, trade deficits aren’t necessarily a sign of weakness for the countries running the deficits. "One reason for a trade deficit can be that the deficit country is growing faster than its trading partners."

"Faster growth attracts investment dollars, which, along with rising incomes, allow the deficit country to buy more imports on the global market," he explained. "In slower growing countries," on the other hand, "demand for imports falls and capital flows outward to greener pastures."

This would explain, as Griswold pointed out, "why trade deficits have tended to expand in times of relative prosperity, and to contract in times of recession." For example, America’s smallest trade deficit of the nineties was during the 1991 recession, while the decade’s largest trade gap was in the boom year of 1997.

Richard W. Stephens of The New York Times, on February 20, was one of the few reporters to portray the trade numbers in this positive light: "The widening of the annual deficit was more a reflection of the strength of the American economy than an indication of a fundamental problem."

— Rich Noyes