"Stop Worrying": Stephen Gordon On Canada's Widening Trade Deficeit

Stephen Gordon explains why Canadians shouldn't worry about their widening trade deficit.  To boil down his already short article, Gordon points out that net exports are a component of a nation's GDP, and thus lower net-exports can lower a nation's GDP.  But falling net-exports can also lead to rising investment, which is also a component of national GDP.  So, falling net exports can be offset by rising investment.  And where does that lead us?  The conclusion from Stephen Gordon's helpful and concise piece in Macleans: 

...there’s no obvious reason to think that strong growth in net exports is positively correlated with strong growth in GDP: net exports fell in the expansions of 1982-1990, 2001-2008—and again in the most recent expansion..."

That said, what could be considered worrisome is the drop in the levels of both exports and imports: this is indeed a sign of a slowdown in overall economic activity. But that would have been bad news even if net exports had gone up.

People should stop worrying about the trade balance; the fact that the word “deficit” is used shouldn’t alarm you.