Trump Economics Lesson: He misunderstands the U.S. current account.

• Author: Braml, Martin T.

The U.S. president's objective to "make America great again" contradicts the simple fact that the United States is by a wide margin the richest economic power in the world. Its per capita income exceeds Germany's by almost 20 percent, Korea's by almost 50 percent, and China's by a striking 250 percent. It is by almost 50 percent higher than the European Union's average. If those countries treat the United States unfairly, very little of that is visible in the data.

Here is the trillion dollar question: How is it possible that the current U.S. president can picture the richest country in the world as a piggy bank being robbed by its trade partners, and millions of people believe that narrative? The answer has to do with deep and widely shared misconceptions about the nature of the U.S. economy and the willingness to blame foreigners for troubles within the United States which, above everything, have to do with a scandalously high level of economic inequality.

GOODS TRADE VERSUS CURRENT ACCOUNT

Whenever the U.S. president laments about international economics, he focuses very narrowly on trade in goods. Indeed, according to official statistics, the United States ran a deficit in goods trade of US$811 billion in 2017. This view is insufficient and misleading. The United States has a strong comparative advantage in services industries. So, quite in line with classical trade theories, the United States is a net importer of goods but a net exporter of services. In fact, its services trade surplus amounted to US$242 billion in 2017. The focus on activities which the United States is particularly good at has served the country well--see the international income statistics. Services exporters offer skill-intensive, high-paid jobs. Their export success secures U.S. technological leadership in the relevant areas of the twenty-first century. Who wants to build fridges or washers--frontier products of the 1950s--if the future belongs to driverless cars and airborne logistics powered by drones?

The surplus in services trade underestimates the true performance of U.S. services firms on global markets. Clearly, U.S. firms can serve foreign markets in two broad ways: either by exporting from America to the foreign economy, or by establishing a foreign affiliate. Only the former mode is captured by standard trade statistics. The latter gives rise to what international balance of payments conventions call "primary income": profits earned by American...