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10 Things to Know About the US Trade Deficit

 

  1. What is a trade deficit? A trade deficit occurs when a nation imports more than it exports, causing more money to be spent than earned by the U.S. economy. The trade deficit is caused by an imbalance between a country’s investments and savings.
  2. Why does it matter? The United States has a longstanding history of importing more than it exports. For example, in 2016 the United States exported $2.2 trillion worth of goods but imported $2.7 trillion, leaving a trade deficit of $500 billion. Basically, the United States is spending far more money than it is making, plunging the country into further debt.
  3. How does it affect the United States? The trade balance has steadily decreased in the last 40 years, causing the United States to owe more and more debt. The higher the trade deficit, the more debt the country will be in.
  4. Who does the United States trade with? The United States’ major trading partners are China, Canada and Mexico. The trade deficit with China is $335 billion and is responsible for 66% of the trade deficit. The trade deficit between the United States and other countries causes the value of the dollar to decline.
  5. What products drive the trade deficit? The import of consumer goods is one of the major driving forces of the trade deficit, adding $404 billion to the deficit in 2017. These consumer goods include generic drugs, television, clothing and other household items. Automobiles are also a major part of the deficit, adding $201 billion.
  6. What is America good at exporting? Of all things, America is extremely talented at the exportation of services. Although services are not technically exported, things such as tourism and intellectual property that are sold in the United States lower the deficit. When it come to these purchases, the United States exports more than it imports, contributing to a trade surplus.
  7. What do politicians say about it? President Donald Trump’s campaign centered around lowering the trade deficit. He argues that trade imbalances hurt the economy and is aiming to fix the imbalance that has continually plagued the country. In addition to the damages trade deficits can have on the economy, senior advisor to the president on trade and industry, Peter Navarro, fears that a trade imbalance can be a threat to national security.
  8. How can the deficit be reduced? Expert economists believe that the key to decreasing the trade deficit is negotiating better access to the Chinese Market for U.S. exporters. Some believe that weakening the U.S. dollar will increase exports as an enticement for other countries to purchase goods. Otherwise, boosting the savings rate could have a positive impact on the current trade deficit.
  9. What are the arguments supporting action against the trade deficit? Some economists believe that trade boosts the overall economy by lowering prices and increasing productivity. If the United States is importing more than exporting and the trade deficit increases, trade outside of the United States will decrease resulting in higher prices and lower productivity.
  10. What are the arguments against action in decreasing the trade deficit? Although some believe that the trade deficit is a threat to the country, others believe that the trade deficit is simply a scapegoat for other factors that hurt the economy. They believe that it may not be a huge problem because as an economy becomes significantly larger and stronger, consumers spend more and these higher interest rates encourage foreign investors to place their money in the United States.
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