The Surplus Americans Don’t Hear About

By Daniel B. Klein

Tuesday, April 22, 2025

 

People have a hard time reflecting on terminology whose acceptance has become entrenched. But bad terminology is bad terminology no matter how entrenched it has become.

 

President Trump inveighs about a “trade deficit” to justify tariffs. Do we have a “deficit” with China? We may just as well say that we have a surplus with China — a stuff surplus.

 

When a dollar trades for a food import, the government’s record keepers do the accounting as though they are husbanding dollars. But they could do the accounting as though they were husbanding stuff such as food.

 

Divide all things into two groups: (1) dollars and (2) all non-dollar things that dollars are traded for. Let’s call the second group “stuff.”

 

When speaking of international trade, or the current account (which principally measures exports and imports of goods and services), the terminology calls it a “deficit” if the value of imports exceeds the value of exports, with both imports and exports valued at the prices at which they are transacted.

 

In the United States for almost five decades, imports have exceeded exports. On net, more dollars leave the United States by Americans’ purchases of imports than come in by Americans’ sales of exports. Such a situation is termed a current-account deficit, or “trade deficit.” Calling it a “deficit” elevates dollars above what the dollars buy.

 

But the terminology could be formulated the other way around, in a framework of husbanding stuff. Then, under the same condition of imports exceeding exports, the focus is on the stuff that, on net, is flowing into the United States. Now we view the exact same world but see a surplus.

 

The point is not to repeat the important truth that the trade deficit corresponds to the capital-account surplus. Rather, the point is that the whole conventional framework assumes that the goal of international trade is to husband money rather than real goods and services.

 

Maybe that framework stems from the government’s basic instinct and natural interest in finding the dollars and taking a portion of them. After all, taxes are paid in dollars, not in stuff!

 

It comes down to a choice between two perspectives, each corresponding to what will be given a positive sign and what will be given a negative sign — the money or the stuff? The Nobel economist Thomas Schelling noted that there is “no significance, other than custom, in the choice of sign.” Had the convention developed differently, what is now called a “trade deficit” could have been called a “trade surplus.”

 

The next time you hear President Trump inveigh about our “trade deficit” with China, say to yourself: We have a stuff surplus with China — wording that sounds much less ominous than a “trade deficit with China” and that is therefore less likely to fuel support for unwise protectionist measures.

 

It would have been better if economists in the 20th century had never adopted the language of trade “deficits” and “surpluses.” My colleague Donald Boudreaux and I elaborated the semantic trap in “The ‘Trade Deficit’: Defective Language, Deficient Thought.”

 

Better language could have avoided the misleading and dangerous connotations of “deficit,” connotations that distort economic understanding.