Mexico trade deficit

From time to time you hear politicians and pundits wringing their hands about the trade deficit, which is one of the more useless economics statistics you will ever encounter. One of the leading trade deficit doom mongers of the 1990s was Ross Perot, who warned of a "giant sucking sound" from the U.S. economy if the North American Free Trade Agreement was ratified from all of the industry that was sure to decamp for the lower wages of Mexico. The treaty was eventually ratified and entered into force on January 1, 1994. The U.S. economy went on to boom for the rest of the decade and Ross Perot faded from the national scene.

Some, however, continue to believe that NAFTA was a disaster for the country's economy, citing the resulting trade deficit. One example is whoever posted this video clip of Ross Perot on youtube:

The year NAFTA was ratified, America had a $1 billion trade surplus with Mexico. By 1995, America had a $16 billion trade deficit with Mexico. Today, America's trade deficit with Mexico is $74 billion. The facts in the chart make President Clinton, Vice President Gore and all the newspaper editors who wrote editorials supporting NAFTA look like complete idiots or worse. Ross Perot was absolutely right even though he was not effective in the debate.

It's true that the trade deficit exploded following NAFTA conclusion. But so what? All it means is that we're importing more stuff from Mexico than we are sending to them -- and that's fine for us. After all, the point of trade is to give up as little as possible while getting the maximum amount in return. Exports are only a means to an end -- obtaining money that you can then use to buy imports.

There is good news for those who worry about the bilateral trade deficit with Mexico, however -- it's declining along with the fortunes of our economy. Here is a chart I put together with data from the Census bureau (with the 2009 figure annualized based on January-May stats):

There is a pronounced decline that reflects broader trends in U.S. trade, with the overall trade deficit at its lowest level in nine years. Given that it corresponds with a severe recession I don't really see it as cause for celebration, but perhaps Ross Perot feels otherwise.