For years, labor leaders and activists calling for major changes in U.S. trade policy have fingered the trade deficit as the culprit behind job losses, particularly in the U.S. manufacturing sector.

This is a timely discussion. The monthly trade deficit has recently fallen to its lowest level in a decade, down by more than half in just a few months (October 2008 – February 2009). Simultaneously, millions of Americans have lost their jobs. What do these facts tell us about the alleged connection between job losses and the trade deficit?

Two of Washington’s most thoughtful commentators on trade issues, Ed Gresser of the Progressive Policy Institute and Phil Levy of the American Enterprise Institute, both shared their thoughts on this question recently.

Gresser explains:

The main reason for the falling deficit is the plunging import total: down from $230 billion last July to $152 billion in February, with the fastest drops in energy and manufacturing … Exports, which helped support employment in the first half of 2008, are also now falling as foreign countries go into recession; but still falling slower than imports.

Writing in Foreign Policy, Levy observes:

[The falling trade deficit] would seem to belie claims that growing trade deficits imply job losses. The logic behind those arguments also implies that shrinking trade deficits bring job gains. In fact, as the U.S. trade deficit halved, we lost 4.25 million jobs.

Gresser offers a hat tip to Doug Karmin, a former international economist with the U.S. Department of Commerce, and his report also prepared for the Progressive Policy Institute. Karmin writes:

The data is clear: When imports go up, unemployment goes down — whether during boom or bust, whether during Democratic or Republican administrations.

Karmin adds that this doesn’t make trade deficits irrelevant. They do force the United States to borrow from abroad on a large scale. But he says the answer is to "meaningfully reduce our energy dependence and significantly raise our national savings rate." This is exactly right. Correlation isn’t causation, but if rising imports usually come with rising employment, that’s an important fact for policymakers to bear in mind. It certainly means that raising barriers to imports is a poor “solution” for the U.S. trade deficit.

Levy gets the last word:

One enthusiastic congressman recently called for the United States to use a sledgehammer to address its trade deficit problems. Before we do so, we should figure out whether we’re dealing with a nail or a screw.