The U.S. Commerce Department today announced that the trade deficit for April was $43.7 billion.
This number is misleading because it implies a “deficit” in terms of dollars leaving the country, which is not the case.
For example, the trade deficit numbers do not include the billions of dollars foreigners spend on U.S. Treasury bonds to help finance our government’s enormous budget deficit. Last year, foreigners spent an average of $59 billion per month on U.S. Treasury bonds.
Also not included are the dollars people in other countries invest in the U.S. economy, either directly by building factories here or indirectly by buying stock in U.S.-based companies. New foreign direct investment averaged over $16 billion a month in 2010.
The monthly trade statistics also overlook profits Americans make from our investments in other countries. These investments generate more dollars for the U.S. economy than any single category of exports. In 2010, Americans earned an average of $55 billion a month from our investments in other countries.
To fully account for reality, the Commerce Department’s monthly statistics should report that, although we may have a monthly deficit in goods and services trade, many other aspects of our international economic transactions are adding billions of dollars to the other side of the ledger. Reporting only the trade deficit without including this full explanation is misleading, and it encourages politicians to take actions that could further undermine the U.S. economy.