Billionaire fund manager's message on trade deficit may shock you

There's significant debate this year over tariffs. Proponents think tariffs will strongarm a return to U.S. manufacturing, while opponents believe tariffs are a consumer tax that could send the U.S. economy reeling.

President Trump falls firmly into the tariffs-are-good camp.

So far, he's slapped 25% tariffs on Canada, Mexico, and Autos. He also instituted a 10% baseline tariff on imports, and despite a recent rollback, still maintains a hefty 30% tariff on China, one of our largest trading partners.

Trump has even gone as far as proposing a whopper 50% tariff on the European Union, plus 25% tariffs on Apple iPhones and Samsung smartphones.

All of these decisions are designed to reduce the U.S. trade deficit. The deficit for goods alone was a record $1.21 trillion last year, up from $1.18 trillion in 2022.

The moves may encourage commitments to create new manufacturing plants in America, but not everyone is convinced that trade deficits justify tariffs, including billionaire and Fisher Investments Founder Ken Fisher. The firm has nearly $300 billion in assets under management.

The trade deficit is cited as a reason for increased tariffs, but trade deficits aren't necessarily bad.

Image source: Michael M. Santiago/Getty Images

U.S. trade deficit may not be the biggest risk to the economy

Trade deficits aren't necessarily a good thing, but they're not necessarily bad, either.

Increased imports from lower-cost countries can mean lost jobs, particularly in industries where labor costs are high or gross margins are small. As a result, manufacturing jobs have been hit hardest by the trade deficit.

While job losses are concerning, trade deficits also mean that U.S. consumers benefit from deflationary forces associated with importing goods from low-cost countries such as China.

Clothing, electronics, car parts, and yes, iPhones, for instance, are currently much less expensive than they'd be if they were built in the United States.

As a result, whether trade deficits are good or bad is likely influenced by your personal situation.

Zoom out, however, and you realize that trade deficits aren't nearly as big of a problem for the U.S. economy as other challenges, including inflation, which zaps economic activity, causing job losses, or mounting U.S. debt, which threatens higher interest rates on everything from credit cards to mortgages.

Billionaire fund manager delivers blunt message on trade deficit

In a recent post on X, Fisher debunked the concept that trade deficits are bad, going as far as labeling the idea as “ignorant.”

“Countries have run trade deficits, surpluses forever,” said Fisher. “They've never been causal. People are afraid of the word deficit because it sounds bad… In reality, it's just an accounting model.”

Fisher points out that this accounting simply measures the flow of money. Trade deficits or surpluses don't cause economic outcomes; they're a byproduct of them.

As evidence, he points toward Germany and France, two very close trading partners similar to the U.S. and Mexico. Germany has long run a trade surplus and France a trade deficit with one another, yet each has seen its economy grow similarly.

To further emphasize his point, he says each of us “runs a trade deficit most of our life,” because “you buy stuff,” like groceries, exchanging our money for goods and services in a “one-way negative cash flow” relationship.

“Is that deficit costing you?” Said Fisher. “No. You do something else outside somewhere that gets you what you need elsewhere.”

Fisher also points out that states have trade imbalances with other states, including some of the fastest-growing states, like Tennessee or Georgia, that run negative trade balances.

“America, land of the free [and] home of the brave, has grown faster than most all of the countries that have trade surpluses against us,” said Fisher. “We're doing other things that make use grow faster; as we grow faster, we become wealthier.”