There Really Is No Trade Imbalance To Eliminate, So Eliminating A Fictional Deficit Won't Create JobsMark Perryupdated Oct 03, 2011TweetAt GET.com we maintain complete editorial integrity on our content & provide transparent & unbiased information. Companies don't pay us to include their products although we receive a compensation when you successfully apply to products from our partners. See how we make money here.At GET.com we maintain complete editorial integrity.What imbalance?According to C. Fred Bergsten (Director of the Peterson Institute for International Economics) writing in the NY Times:"The U.S. runs an annual trade deficit of about $600 billion, or 4 percent of our entire economy. Eliminating that imbalance would create three million to four million jobs, according to Commerce Department estimates, at no cost to the budget."Don Boudreaux responds, and Mr. Bergsten responds to Don here.Here are some comments:1. There really is no trade "imbalance" once we take into account the fact that an annual "trade deficit" of $600 billion is exactly offset by a "capital account surplus," "capital inflow," or "foreign investment surplus" of $600 billion. The chart above shows that America's annual "trade deficits" have been balanced every year with offsetting capital inflows, and since 1980 America has benefited by a cumulative $8.1 trillion "foreign investment surplus." Because there is no real "trade imbalance" to bring into balance, it's unlikely that any correction to a fictional imbalance would create any new jobs. 2. The only way to eliminate the $600 billion trade deficit would be to simultaneously eliminate the $600 billion foreign investment surplus. With the elimination of hundreds of billions of dollar of foreign investment that likely helps create jobs, why would we expect a net job increase? As Don Boudreaux points out, if Americans purchase $1 million of Chinese textiles, that $1 million comes back into the U.S. either to purchase: a) $1 million worth of American goods and services, or b) $1 million of American assets (stocks, bonds, real estate, direct investment in U.S. firms, etc.). Apparently, C. Fred Bergsten assumes that the $1 million spent on American goods supports or creates U.S. jobs, while the $1 million spent on U.S. assets does nothing for U.S. jobs. That's nonsense. The $1 million invested in the U.S. to purchase American assets might create more jobs in the long run than the $1 million spent on American goods. In any case, the simple fact that there is no "trade imbalance" to start with once we account for spending on both goods and financial assets, implies that eliminating a "fictional imbalance" won't have any effect at all on U.S. employment.Editorial Disclosure: Any personal views and opinions expressed by the author in this article are the author's own and do not necessarily reflect the viewpoint of GET.com. The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone, not those of the companies mentioned, and have not been reviewed, approved or otherwise endorsed by any of these entities.