3.2. Adam Smith on Trade Deficits
Adam Smith who was the sole propounder of the theory of absolute advantage was of the opinion that Trade Deficit was nothing to worry about and that nothing is more absurd than the Doctrine of ‘Balance of Trade’ and this has been demonstrated by several Economists today. It was argued that If for Example, Japan happens to become the 51st state of the U.S, we would not hear about any Trade Deficit or imbalance between America and Japan. They further argued that Trade imbalance was necessitated by Geographical boundaries amongst nations which make them see themselves as competitors amongst each other in other to gain Trade superiority among each other which was not necessary. They further posited that if the boundaries between Detroit, Michigan and Windsor, Ontario, made any difference to the residents of those cities except for those obstacles created by the Government. They posited that if it was necessary to worry about the Trade Deficit between the United States and Japan, then maybe it was necessary to worry about the Deficits that exist among states. It further that stated that if the balance of Trade doesn’t matter at the personal, Neighbourhood, or city level, then it does matter at the National level. Then Adams Smith was Right!.
They observed that it was as a result of the Economic viability of the U.S that made their purchasing power higher than that its Asian counterpart who was Exporting more and importing less than the U.S and that it wouldn’t be better if the U.S got poorer and less ability to buy products from abroad, further stating that it was the Economic problem in Asia that made people buy fewer imports.