Economist for former GOP president says US needs ‘big trade deficit’

Former Reagan economist Art Laffer said on Fox Business Monday that the United States should not only tolerate but embrace a significant trade deficit.

U.S. stocks plummeted on Thursday following President Donald Trump’s announcement of a new baseline 10% tariff and higher tariffs on countries with significant trade deficits, leading to the Dow’s worst session since June 2020. During an appearance on “Kudlow,” Laffer said that the common understanding of the trade deficit is misguided.

“The trade deficit is not a problem. If you get people to bring their businesses back to the U.S. to load up their machines in Mexico, to drive them up over the border so they now employ Americans and not Mexicans,” Laffer told host Larry Kudlow. “If you do that because we have good policies, that’s called a Mexican trade surplus and a U.S. trade deficit.”

Laffer said that a trade deficit signals the inflow of capital into a country, which he views as unequivocally beneficial.

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“Trade deficits are capital surpluses. That’s when you bring the capital home. So anything that says the trade deficit is bad is completely wrong,” Laffer said. “The U.S. needs a trade deficit because that’s a capital surplus. When Reagan’s tax cuts took effect on January 1, 1983, the U.S. went into a huge trade deficit as the economy boomed beyond belief. Everyone was trying to invest in the United States, Larry.”

The economist also praised Trump’s economic policies and suggested they are set to replicate the success of the Reagan administration. 

“What do you want? Capital lined up in your borders, trying to get into your country or trying to get out of your country? Of course, you want them to come into the country. And that’s what happened with Reagan,” Laffer added. “And, by the way, that’s what’s going to happen with Trump with its phenomenal policies. What he has done in all the rest of the policies are spectacular. I think he was the best single president on economics, by the way, in his first term.”

Laffer said that a robust trade deficit is not a sign of economic weakness but a strategic advantage that indicates a thriving economy.

“If he does this right this time, he’ll be the best president ever in economics. But we need a big trade deficit, a big capital surplus, while everyone brings the jobs back to America,” Laffer said. “That’s what we need.”

Since Trump’s return to the White House, the U.S. has actively engaged in strategic trade negotiations with several countries, including Mexico, China, and Canada. In his first term, Trump implemented a series of trade measures aimed at China, initiating a trade dialogue between the U.S. and China.

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