Are ‘loser’ states responsible for the US trade deficit? 

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Both presidential candidates have promised that greater trade restrictions will be on the way if they win. Biden has recently placed tariffs on China’s EV production, and the Trump campaign has discussed a 10 percent universal tariff. There are two main reasons for the protectionist turn: the trade deficit, and the outsourcing of jobs.  

The national trade deficit is $773.4 billion. That means Americans import $773.4 billion more goods than they export. Those who argue against free trade insist that this is a great concern, and that Americans are losing money to foreign nations through trade. This is based upon the assumption that a nation with a trade deficit is “losing” in the game of international trade. A problem with this argument is that this trade deficit is not evenly distributed amongst the states. In fact, according to OECD data, just nine states account for almost the entirety of the country’s trade deficit:  

  1. California – $20.8 billion 
  1. Michigan – $9.15 billion 
  1. Illinois – $9.1 billion 
  1. New Jersey – $8.1 billion 
  1. Georgia – $7 billion 
  1. Tennessee – $5.36 billion 
  1. Pennsylvania – $4.71 billion 
  1. Kentucky – $3.37 billion 
  1. Florida – $3.3 billion 

Upon first inspection, these states have little in common other than the trade deficits. They are divided between Republican, Democrat, and swing states.  These states have varying social situations, demographics, and resources. But the trade deficit states have something important in common: prosperity. Of the nation’s 10 highest GDPs by state, six are on this list. These nine states make up roughly a third of the national economy, and over a third of the nation’s population.  

Like trade deficits, trade surpluses have little bearing on the overall success of a state’s economy. Texas, the state with the largest trade surplus, is an economic powerhouse with an advanced service economy and the second highest GDP in the country. Louisiana, the state with the second largest trade surplus, is not only not an economic power, but it also has the tenth lowest GDP per capita in the nation. The surpluses arise because these states benefit from exporting. Texas has a massive oil industry as well as major refineries, while Louisiana has a convenient port. 

As my colleagues Iain Murray and Ryan Young state in the booklet Traders of the Lost Ark, nations do not trade, individuals do. When they do so, it is because it is mutually beneficial to both parties. It is illogical to assume an economy is weak, or that a state or nation is “losing,” due to a trade surplus or a deficit.  The only thing we know is that most individuals involved in international trading are winning. Otherwise, why trade in the first place?