Sir, Daniel Griswold is certainly correct in asserting that there is a relationship between the U.S. trade deficit and economic growth ("Forget trade deficits: go for growth", February 25). However, he is mistaken as to the causality of that relationship. Rather than large trade deficits causing rapid economic growth, as Mr. Griswold seems to believe, it would appear more plausible that it is rapid economic growth that causes large trade deficits. Rapid economic growth does so by sucking in imports to meet the increased level of domestic demand that is associated with such growth.

Mr. Griswold overlooks the fact that, at around 6 per cent of gross domestic product, the U.S. external current account deficit is not sustainable. The U.S. has already moved from being the world's largest creditor nation to being the world's largest debtor nation, with net external liabilities of around 30 percent of GDP. Were the U.S. external current account deficit to remain at around 6 percent of GDP, the U.S. would be on the path towards having its net external liabilities rise to more than 100 percent of GDP.

U.S. policymakers would be making a grave mistake by ignoring today's large external current account deficit and by blithely going for economic growth as Mr. Griswold seems to suggest. A point must be reached where U.S. foreign creditors, including the Asian central banks, come to believe that it makes little economic sense to keep adding to their already record holdings of U.S. dollar-denominated assets and to keep financing the U.S. twin deficits.

Desmond Lachman is a resident fellow at AEI.