America’s trade deficit rose in January. Many times an expanding trade deficit indicates an expanding economy and more American jobs. In January, this may not have been true. The single biggest factor in pushing the trade deficit higher in January was higher oil prices. Unfortunately, these may also push the trade deficit higher in February, March, and perhaps beyond.
Protectionists who don’t want to let Americans freely make their own choices are already vocal in denouncing the higher trade deficit. This is actually a bit strange, since the January deficit looks like the sort that could be created by protectionist policies. Here’s how.
Higher oil prices hurt. They hit everyone’s pocketbooks by raising the cost of traveling and many of the things we buy, even as our salaries stay the same. Part of what happened in January is that the cost was higher than in December for the same amount of oil. And the higher costs for imports made all Americans poorer.
Protectionists want to do exactly the same thing. They want to raise the price of imports through tariffs, quotas, or other measures. This could actually increase the trade deficit by making the same set of imports cost more. Even if it doesn’t, tariffs and quotas will make all Americans poorer by making what we buy more expensive. Just like higher oil prices.
So next time you talk to a protectionist, ask them why they think high prices are such a great idea.