Rick Scott’s Trade Deficit Bill: Economic Illiteracy on Steroids

Sen. Rick Scott (R-Fla.), joined by Sens. Kevin Cramer (R-N.D.) and Tim Sheehy (R-Mont.), has introduced the “Trade Deficit Elimination Act.” The bill would require the U.S. Trade Representative to identify countries with which America runs trade deficits and then adjust tariffs upward to close those gaps. In Scott’s words, we can’t “let other countries rip us off.” Cramer adds that trade should be “fair, not one-sided.”

This is not merely misguided policy. It is one of the purest expressions of economic ignorance to emerge from the Senate in recent memory.

First, the foundational premise is false: trade deficits are not a problem. Although the phrase “trade deficit” contains the word “deficit,” there is absolutely nothing negative about it. It merely reflects the wealth of the United States. The country has run large current-account deficits for roughly half a century. Those decades produced the world’s most powerful and innovative economy, rising living standards, and sustained capital formation. The only periods when the deficit reliably shrinks are recessions—when Americans stop buying goods and services. Prosperity, not pathology, drives the pattern. Wealthy consumers demand more than domestic producers supply at competitive prices; foreigners happily supply the difference.

What people who understand economics recognize is that the fact we buy more stuff than we sell is itself a reflection of how high our standard of living is. When critics express concern that we have bought all this stuff, they ask what happens to the dollars we send to other countries. The answer is simple: those countries are more than happy to take the dollars and invest them in U.S. companies, real estate, Treasury securities, and other assets. The resulting capital inflows are the natural counterpart of the trade numbers. They fund American investment, help keep interest rates lower than they otherwise would be, and support growth. Treating the trade figures as a loss confuses an accounting identity with economic harm.

Which brings us to the second, even more absurd layer of the Scott-Cramer-Sheehy approach: bilateral deficits. There is no economic reason that trade between any two countries should balance. Specialization and comparative advantage guarantee otherwise. It is as stupid a statement as saying we shouldn’t buy anything from a supermarket unless the supermarket bought an equivalent amount of stuff from us.

Suppose Americans want Brazilian bananas and Brazil has little immediate demand for American aircraft or software. The United States runs a bilateral deficit with Brazil. Brazil takes the dollars and buys goods from Germany, Japan, or China. Those countries, in turn, may buy American products or invest here. The circle closes. Bilateral balances are noise; the multilateral pattern and the capital flows are what matter. Demanding that every bilateral relationship equalize is simply another version of the supermarket fallacy.

Tariffs do not “fix” this non-problem. They are simply taxes on American consumers and businesses. They raise prices, invite retaliation, misallocate resources, and reduce overall efficiency. The bill’s exemptions for “national security” and products that “cannot be grown or produced in sufficient quantity” are a rationalization for the most arbitrary of these taxes. They do nothing to mitigate the stupidity of the rest of the tariffs. If a product cannot be produced competitively here, taxing it is still just a tax on American buyers.

Scott, Cramer, and Sheehy should know better. The United States does not become poorer when it imports goods that foreigners produce more efficiently and then attracts the corresponding investment. It becomes richer. The notion that we are being “ripped off” by running deficits with particular countries confuses accounting identities with economic harm. It is the same mercantilist fallacy that Adam Smith dismantled two and a half centuries ago and that competent economists have rejected ever since.

Congress has real fiscal and growth challenges. Inventing bilateral trade-balance targets and then arming the bureaucracy to enforce them with tariffs is not only no solution; it does real harm to the economy in a spectacular display of economic stupidity, all to “fix” a problem that does not exist.