It’s time for another round in the ongoing saga of “Kevin complains that economists are terrible at naming ideas.” Here, I propose that economists should consider rebranding “the trade deficit.”

The reason people so badly misunderstand the term is right there in the name – deficit. Deficits sound bad. In most usages, deficits imply something along the lines of living beyond one’s means and accumulating debt. That would certainly be true if my household budget was in a deficit. If my monthly household budget was in a deficit, that would imply the difference is being made up by racking up credit card debt, or borrowing money from friends and family, or something along those lines. Households can run a budget deficit for a short while – maybe they were hit by unusually high expenses and had to put some things on a credit card to get through the month. If they cut back spending over the next few months until the credit card debt is cleared, then there’s no great cause for alarm. But if that situation were to repeat itself every month, for years on end, there’s no happy ending to that story.

But a country running a trade deficit is not analogous to a household living beyond its means and racking up credit card debt. For example, Nintendo just announced a new video game console, the Nintendo Switch 2, currently priced at $449. (I say currently because it remains to be seen if impending tariffs drive that price up when it actually comes to market.) Suppose I decided I wanted to buy one. I go to Nintendo’s website and enter my debit card information, and send them $449 from my checking account and become the proud owner of a shiny new video game platform. In doing so, the trade deficit has increased by $449. But…there’s no debt involved in this process. Nobody is living beyond their means. There’s no cause for alarm here. If President Trump is to be believed, this transaction is evidence that Japan is “ripping us off” or “taking advantage of us” by selling me something I want at a price I’m willing to pay. But that’s clearly wrong – a mutually beneficial exchange has occurred, nothing more or less.

So here’s my proposed rebrand for “the trade deficit.” It relates back to a previous post I wrote, on how to think about imports and exports. I pointed out that when a country runs a trade deficit, it becomes “a country where citizens get more goods and services from foreigners than those citizens send away for foreigners to consume.” So maybe instead of calling this situation a “trade deficit,” we should call it a consumption surplus. In 2024, the United States ran a trade deficit of about $918 billion. The United States sent about $3.2 trillion dollars worth of goods and services away to be consumed by foreigners, but was able to consume about $4.1 trillion dollars worth of goods and services from foreigners. We got the benefit of consuming $918 billion dollars more in goods and services than we had to give up in exchange! As President Trump likes to say, that’s a lot of winning. So much winning!

(Note: the term “consumption surplus” is itself misleading, because as I mentioned in a recent previous post, over 60% of imports into the United States are inputs for production, rather than imports that are directly consumed. Still, it seems less misleading to me than the current terminology.)

Of course, there’s another side of this coin. As Scott Sumner recently pointed out, “when all types of trade are taken into account (goods, services and financial assets) trade always balances.” That is, a trade deficit (or more precisely, a current account deficit) is always and everywhere balanced out by a capital account surplus, which tracks savings and investment rather than goods and services. So saying the United States had a current account deficit of $918 billion last year means the United States also ran a capital account surplus of $918 billion last year. This is because the money foreigners don’t spend on US-produced goods and services is instead used to support savings and investment – buying dollar-denominated assets, foreign direct investment in US companies, bond purchases, that sort of thing.

(In fact, let’s assume an extreme case where instead of using those $918 billion dollars for investment in the United States, foreigners decide to convert it all into cash and then burn it. So in this case, that’s $918 billion that will never be used to buy American goods, services, or for investment. Even then, there’s no cause for alarm. All this bonfire would do is decrease the amount of US dollars in circulation, making all the dollars held by American citizens more valuable. So even in that extreme situation, the value represented by that $918 billion comes back by increasing the purchasing power of the remaining dollars.)

So with this rebranding, US citizens not only get the benefits from a consumption surplus, but also experience an equally large investment surplus as well. I think this is a framing that would actually get through to President Trump – but sadly, he hasn’t returned any of my phone calls. Hopefully he reads this blog though!