Leading Economists Tell SCOTUS Trade Deficits Aren't 'Unusual or Extraordinary' Threat
A group of 44 leading economists, including former Treasury Secretary Janet Yellen and four Nobel Prize winners, filed an amicus brief at the Supreme Court on Oct. 23 to contest President Donald Trump's reciprocal tariffs, arguing that the threat underlying the tariffs, sustained trade deficits, don't amount to an "unusual and extraordinary" threat to the U.S. economy, as required by the International Emergency Economic Powers Act (Donald J. Trump v. V.O.S. Selections, U.S. 25-250) (Learning Resources v. Donald J. Trump, U.S. 24-1287).
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The brief said that both aggregate and bilateral trade deficits are "harmless per se." The only time trade deficits can become a problem is when the nation faces trade deficits in "particular industries," such as weapons production, but this threat "would be industry- and perhaps country-specific and cannot be measured simply in dollars or percentages of the aggregate trade deficit," the brief said.
The economists explained that "aggregate trade deficits are neither good nor bad per se," since they are the "flipside of foreign investment surpluses." A trade deficit is just an "excess of imports over exports" and is "just accounting terminology," the brief said. The U.S.'s persistent trade deficit just means it "persistently receives more goods and services from other countries than those other countries receive from the United States, which is in and of itself a good thing."
The reasons the U.S. has been the "preferred destination of capital for many decades are the same reasons it has persistently run trade deficits: its innovative and dynamic economy, deep and liquid markets, and status as a safe haven," the brief said.
The economists sought to reply to the rationale from the government and the dissenting opinion in the U.S. Court of Appeals for the Federal Circuit's ruling on the IEEPA tariffs, which defended the notion that sustained trade deficits are an "unusual and extraordinary" threat. While the CAFC dissent noted that trade deficits are generally harmless, it then said a threat may yet come from the "particular goods trade deficits … that cause a number of specified negative effects."
However, the economists said that the links Trump's executive order imposing the reciprocal tariffs draws from the U.S. trade deficit to "several other phenomena" are "nonexistent." While Trump said large and persistent goods deficits have hollowed out the U.S. manufacturing base, the amici said this "cannot be correct." Even if the entire U.S. trade deficit in goods were replaced with domestic manufacturing, U.S. manufacturing would only make up 14% of GDP, which is "half of its peak in the early 1950s," the brief said. Instead, the decline of manufacturing as a share of GDP has come from labor productivity, the brief said.
The White House also said sustained trade deficits have "inhibited our ability to scale advanced domestic manufacturing capacity," undermined key supply chains and made our defense industrial base reliant on foreign adversaries. In response, the economists said trade deficits "are not the same as trade." While trade can create "supply chain vulnerabilities" in defense-related goods, "this has nothing to do with the existence of a trade deficit," since a country could be running a trade surplus and still face these issues, the brief said.
Trump also said the trade deficit shows a "lack of reciprocity in our bilateral trade relationships." The economists said while this may be true for some trade partners, the executive order "applies irrespective of individual partners’ tariffs rates, non-tariff barriers, and economic policies."
The amici added that the reciprocal tariffs don't "deal with" sustained trade deficits as is required by IEEPA. The trade balance "equals national savings minus domestic investment, and trade policies do not directly affect national savings or domestic investment," the brief said. The evidence clearly shows that tariffs "reduce total trade flows," though they "do so in both directions." While total trade volume may fall, "the level of the trade deficits may remain unchanged," the brief said. The economists added that the data bears this out, evidenced by the fact that the trade deficit is larger now for 2025 than it was over the same period in 2024.