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Suppose, for example, that under the USRTA the American President persuaded India to reduce its very high protectionist tariffs and Japan to lower its formidable nontariff barriers. America would surely sell more Florida oranges, Washington apples, California wine, Wisconsin cheese, and Harley-Davidson motorcycles. The resultant fall in the trade deficit would increase America’s GDP, and the real wages of blue-collar America would rise from Seattle and Orlando to Sonoma and Milwaukee. But that’s not all.

Consider, too, the investment term in the GDP growth equation. When U.S. companies offshore their production to chase cheap labor or manufacture in a

“pollution haven” country like Communist China or India with lax environmental regulations, the result is reduced nonresidential fixed investment—and a GDP growth rate that is lower than it would be otherwise. Moreover, if such offshored production results in more foreign exports to the U.S.—for example, an American consumer buys a Made in Mexico Dodge Journey or Chevrolet Trax rather than a vehicle assembled in Detroit—the trade deficit rises along with the fall in investment, further reducing GDP growth.

National Security. The national security argument that trade deficits matter begins with America’s national-income accounting double-entry system and this accounting identity: Any deficit in the current account caused by imbalanced trade must be offset by a surplus in the capital account, meaning foreign investment in the US.

In the short term, this balance-of-payments equilibrium may indeed “not matter” as foreigners return our trade-deficit dollars to American shores by seemingly benignly investing in U.S. government bonds and stocks. Of course, this infusion of foreign capital lowers American mortgage rates and keeps the stock market bullishly capitalized, which appears to be all to the good. Over time, however, running large and persistent trade deficits leads to a massive transfer of American wealth offshore into foreign hands. This wealth transfer happens as foreigners use their export dollars to buy American real estate, companies, and financial assets like the aforementioned stocks and government bonds.

The American investor Warren Buffett has referred to such wealth transfers offshore as “conquest by purchase.” To Buffett, the big danger is that foreigners will eventually own so many U.S. government bonds that Americans will wind up working longer hours just to survive and service that foreign debt.

There is an even bigger national security danger, however, that Mr. Buffett has missed: an alternative conquest-by-purchase scenario. Suppose, for example, that one of the biggest holders of U.S. dollars is a rapidly militarizing strategic rival like Communist China that is intent on world hegemony. By buying up America’s companies, technologies, farmland, food producers, and key elements of the domestic supply chain, Communist China can thereby gain more and more control of the U.S. manufacturing and defense-industrial base.