The U.S. Really Does Have a Balance-of-Payments Problem

The establishment case against tariffs got a polished restatement in the Financial Times this week. It is worth examining carefully because it gets the problem wrong, gets the causation wrong, and offers wishes in place of solutions.

Harvard economist and former IMF chief economist Gita Gopinath argues that there is no real balance-of-payments emergency, that the deterioration in America’s net international investment position is largely a valuation story rather than a genuine external crisis, and that the real answers lie in fiscal consolidation in Washington and consumption-led rebalancing in Beijing. Tariffs, she warns, may create the very crisis they are supposed to prevent.

That may sound academic, but it has immediate real-world implications. The administration’s new tariffs—drafted after the Supreme Court struck down last year’s duties—rest on a 1970s statute that gives the president authority to impose tariffs specifically to address fundamental imbalances in international payments. Opponents are already preparing to argue that the president lacks that authority because the supposed problem does not exist.

Let’s grant that there is something to her first point. Markets still treat the United States as a safe haven. The dollar’s strength during the outbreak of war in Iran is evidence of that. But this lets her refute a panic story the administration does not need. The Trump administration’s case for the new balance-of-payment tariffs does not rise or fall on whether the United States is about to turn into Argentina. It is enough to see that the present system is badly out of balance: our demand flows outward, production follows it, and foreign ownership claims on American assets accumulate. A payments problem does not have to mean we cannot meet our obligations tomorrow morning. It ca