We recently passed the first anniversary of President Trump’s “Liberation Day” tariffs.  Are trade deficits harmful and do they result from other nations’ unfair trade practices?

The trade balance is the dollar value of U.S. exports minus imports, with a deficit when imports exceed imports.  We tally trade balances with individual nations and for the U.S. overall.

Economic statistics do not always accurately reflect the underlying economic decisions.  In this case, nations do not trade; individuals and businesses do.  Saying that nations can create confusion.

When you buy a Honda, you judge that this import better serves your needs than an American car.  Honda will also be happy to sell a car to you.  We have a willing buyer, willing seller, and gains from trade.

This value is not contingent on any Japanese buying an American product in exchange.  Imports and exports benefit the participating Americans regardless of the trade balance.

What matters for America’s prosperity in international trade is our companies producing products that consumers in other countries want to purchase.  Or good products at reasonable prices.

We need this without international trade too.  Imports from Germany and Japan in the 1970s and 1980s signaled deteriorated quality of American cars.  Americans were suffering from poor quality cars and the imports spurred American auto makers improve their product in response.

We need not fear American products being uncompetitive due to low international wages.  Productivity and pay determine products’ competitiveness and American workers are typically highly productive.

The exact pattern of exports and imports emerges from millions of consumer decisions.  Our products will not sell everywhere.  If American companies predominantly produce higher priced products, we will likely run trade deficits with developing countries.

Exchange rates between national currencies should adjust to balance trade.  This can be confusing but let’s walk through the U.S. and Japan and the dollar and yen.

Exchange rates are prices, the price of one currency in another.  The current rate is around 150 yen to one dollar.  Market prices, including exchange rates, adjust to balance supply and demand.  The demand for yen comes from people with dollars buying yen while people trading yen for dollars offer the supply.

Suppose America runs trade deficits with Japan.  Honda receives dollars from selling cars to Americans and need to exchange them for yen to pay their workers and suppliers.  This increase in supply should weaken the dollar, making Japanese goods more expensive and American products cheaper.  Exchange rates adjust to balance trade.

Unless Honda finds Japanese investors wanting dollars to invest in American stocks and real estate.  A trade deficit can persist if paired with an imbalance of financial investment.

Foreign investment in America signals economic health.  Property rights, low taxes, and solid economic growth all attract foreign investment.  Wrecking our economy to discourage foreign investment is no way to address a trade deficit.

The dollar’s reserve currency status also affects trade.  Global markets make trades in dollars, and the dollars and treasury bills held for commerce sustain larger trade deficits.  President Trump has shown no interest in ending the dollar’s reserve status to reduce the trade deficit.

Weak national currencies will boost exports.  China has been accused of keeping the yuan undervalued to boost exports to the world.  The Federal Reserve and Treasury could create inflation to weaken the dollar, but this also seems like poor policy.

A trade deficit can consequently persist for reasons other than trade barriers.  What should be done then about documented trade barriers?

The Honda example reminds us that imports benefit Americans even without reciprocal American exports.  Restricting trade costs the Americans participating in current imports and exports.  Legitimate national security concerns justify intervention, although economists prefer stockpiles or subsidies for domestic production to tariffs.

Foreign trade barriers reduce global economic efficiency and force American companies to play a rigged game.  Tariffs to force an end to trade barriers are worthwhile.  But ongoing trade deficits do not prove the existence of trade barriers.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.