There's 'no fundamental problem' with the US trade deficit, Harvard economics professor says

  • The U.S. is wasting its time trying to fix a non-existent problem regarding its current account deficit, according to an economics professor at Harvard University.
  • A tit-for-tat trade standoff between the U.S. and China has fueled market fears that the dispute could soon spiral into a full-blown trade war.
  • In the final three months of 2017, the U.S. current account deficit widened by more than analysts had anticipated.

The U.S. is wasting its time trying to fix a non-existent problem regarding its current account deficit, according to an economics professor at Harvard University.

A number of U.S. policymakers have sought to justify stoking a trade war with China in recent weeks, saying it is "unfair" for the world's biggest economy to have a current account deficit — which measures the flow of goods, services and investments into and out of the country — with Beijing.

A tit-for-tat trade standoff between the U.S. and China has fueled market fears that the dispute could soon spiral into a full-blown trade war — with market participants also concerned about the potential impact on global economic growth.

"The U.S. has borrowed $9 trillion over the past 20 years, supposedly to cover its current account deficit, so you would expect to see that it now has to pay an interest on those $9 trillion it supposedly borrowed," Ricardo Hausmann, director of the Harvard Center for International Development, told CNBC's Steve Sedgwick on the sidelines of the European House Ambrosetti Forum in Italy on Friday.

"But the U.S. isn't paying a cent. It is actually making more money out of its financial position than it was doing before," he added.

'What is the problem you are trying to fix?'

In the final three months of 2017, the U.S. current account deficit widened by more than analysts had anticipated. The U.S. Commerce Department said last month the current account deficit had risen by $26.7 billion to $128.2 billion. That's approximately 2.6 percent of total national economic output.

Chinese President Xi Jinping and U.S. President Donald Trump attend a welcoming ceremony November 9, 2017 in Beijing, China.
Pool | Getty Images
Chinese President Xi Jinping and U.S. President Donald Trump attend a welcoming ceremony November 9, 2017 in Beijing, China.

When Hausmann was challenged on the point that the U.S. was actually paying to service its debt, he replied: "Yes, but they are making much more money on their investments abroad than they are paying on their liabilities abroad."

Last month, President Donald Trump said via Twitter that trade wars were "good, and easy to win," especially since Washington is "losing many billions of dollars on trade with virtually every country it does business with."

However, in addressing the White House's bid to try to reduce its current account deficit, Haussmann said: "What is the problem you are trying to fix? There is no fundamental problem you are trying to fix in the sense that there is no unsustainability in the current external position of the United States," he added.