Taxing the Economy With More Imports

The large current account deficit has consequences you did not mention (“Dollar, Even in Decline, Makes World Go Round,” by James Flanigan, Dec. 21).

It is a tax on economic growth in two ways. First, when imports grow more than exports, we receive the benefits of trade liberalization and changing comparative advantage through declining prices for imports, but we fail to create new jobs in export industries.

This is an important reason why the economy has created too few jobs during the recovery -- not just in manufacturing but in tradable services -- and keeps unemployment high.

Second, more imports without more exports changes the mix of what the economy makes from tradables to nontradables. The former undertake more R&D; and use and train more skilled labor. I have an econometric model of the effects of capital and trade flows on the economy. It indicates that large current account deficits lower the potential growth of the economy by one percentage point a year. That adds up to a lot over time.

Peter Morici

Professor

Robert H. Smith

School of Business

University of Maryland

College Park, Md.