ABSTRACT
The direct economic role of trade deficits is often overemphasized, but their financing turns out to be of greater potential significance and concern. The trade deficit is a misleading indicator of economic success, but people should not ignore it. Looking beyond the short-run gyrations of the trade balance and the business cycle, a more fundamental and longer-run problem does involve the trade deficit. The US economy is the strongest in the world and the long-term prospects are impressive. In a great many important industries, American firms are the global leaders. Primary reliance on private research and development (R&D) has continued ever since, making more likely an accelerated future flow of new and improved civilian products and production processes in the United States. The more basic and beneficial impact of imports occurs because foreign competition spurs American companies to enhance their competitiveness by lowering costs, improving quality and, in other ways, enhancing productivity.
