Chart of the day: US trade deficits vs. US household net worth — they've risen in tandem over the last half century – American Enterprise Institute

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The chart above was inspired by a similar one that Don Boudreaux featured in the round of his debate at Hillsdale College with Ian Fletcher last week (featured on CD here). It shows the annual US trade deficit (inverted, data here) and the annual dollar value of US household net worth (data here), from 1970 to 2016. As can be seen in the chart, the steady increase in the US trade deficit over the last nearly half-century to a peak of $770 billion in 2006 before falling to an average of about $525 billion during the last seven years has been accompanied by a steady increase in the value of US household net worth, which has increased nearly four-fold in inflation-adjusted dollars since 1970. In dollar terms, America’s household net worth last year rose to another fresh record high of almost $90 trillion, which is an average of more than $700,000 per US household and represents the total value of all household assets (real estate, vehicles, stock, savings, mutual funds, bonds, consumer durable goods, etc.) minus all debt (mortgages, car loans, consumer credit, etc.).

Thanks to the stock market rally to all-time record highs this year, household net worth topped $96 trillion in Q2 of this year, which was an $8.2 billion (and 9%) increase over a year ago. Not bad. Despite the $500 billion deficit that Trump is always complaining about and threatening to address because it’s “very one-sided and unfair,” the stock market is at record highs, along with the worth of American households at $96,000,000,000,000.

Over almost half a century, the correlation between the increasing trade deficit and the rise in US household net worth is stunningly high at 0.93. But according to Trump and his fellow protectionists, aren’t America’s $500 billion trade deficits supposed to be robbing us of our wealth and making us poorer, not richer? The data seem to be telling us that the opposite is actually true — that America and Americans keep getting consistently more wealthy over time, despite the rise in the US trade deficit. As Don Boudreaux commented in a post on Cafe Hayek that features the chart above, “A rising U.S. trade deficit U.S. capital-inflow surplus does not mean that Americans are losing net wealth. Quite the opposite, as reality turns out.”

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