Macroeconomic factors explain 92% of U.S. trade deficits, meaning unfair trade deals are almost never the actual cause.
April 23, 2026
Original Paper
Unfair Bilateral Trade Imbalances
SSRN · 6622544
The Takeaway
Most bilateral trade imbalances are the result of broad economic conditions and comparative advantages between nations. Unfair trade barriers and cheating by partners play a much smaller role than politicians often claim. The public generally assumes that trade deficits are proof that a country is being taken advantage of by its neighbors. This data shows that the imbalances would likely exist regardless of the specific trade rules in place. Addressing these gaps requires focusing on internal economic policy rather than blaming external partners for bad deals.
From the abstract
Contrary to the nearly unanimous academic consensus, we argue that bilateral trade imbalances may be relevant to trade policy. To this end, we employ the workhorse trade model – the gravity equation – as a forensic tool to detect deviations of the actual bilateral trade imbalances from their predicted “fair” counterparts, which are constructed based on fully symmetric bilateral trade costs and while taking into account all countryspecific characteristics, such as macroeconomic conditions or comp