Running a large trade deficit does not actually cause a country's manufacturing sector to shrink.
April 1, 2026
Original Paper
Do Trade Deficits Really De-Industrialize? Manufacturing Shares and Trade Balances
SSRN · 6507099
The Takeaway
Contrary to the central argument of many protectionist policies, a study of 171 countries found no evidence that trade deficits lead to de-industrialization. In fact, countries with deficits often maintained higher manufacturing employment shares than those with surpluses, suggesting that trade balances are a poor predictor of industrial health.
From the abstract
Do economies running persistent trade deficits experience faster manufacturing decline? This question is frequently raised in policy debates but has not been examined systematically in a global setting. We provide a global test of whether persistent trade deficits are systematically associated with declines in manufacturing shares of GDP and employment using data for 171 countries from 2000 to 2022. We find no evidence of a consistent relationship: deficit countries do not experience faster decl