United States balance of trade

The balance of trade of the United States moved into substantial deficit from the late 1990s, especially with China and other Asian countries. This has been accompanied by a relatively low savings ratio and high levels of government and corporate debt. Debate continues over the causes and impacts of this trade deficit, and the nature of any measures required in response.

History

The 1920s marked a decade of economic growth in the United States following a classical supply side policy.^[1] U.S. President Warren Harding signed the Emergency Tariff of 1921 and the Fordney–McCumber Tariff of 1922. Harding's policies reduced taxes and protected U.S. business and agriculture. Following the Great Depression and World War II, the United Nations Monetary and Financial Conference brought the Bretton Woods currency agreement followed by the economy of the 1950s and 1960s. In 1971, President Richard Nixon ended U.S. ties to Bretton Woods, leaving the U.S. with a floating fiat currency.

Over the long run, nations with trade surpluses tend also to have a savings surplus. The U.S. generally has developed lower savings rates than its trading partners, which have tended to have trade surpluses. Germany, France, Japan, and Canada have maintained higher savings rates than the U.S. over the long run.^[2]

Impacts

Deteriorating U.S. net international investment position (NIIP) has caused concern among economists over the effects of outsourcing and high U.S. trade deficits over the long-run.^[3]

The notion that bilateral trade deficits are bad in and of themselves is overwhelmingly rejected by trade experts and economists.^[4]^[5]^[6]^[7]^[8] Some economists note that the trade deficit increases when the U.S. economy grows and Americans are able to buy the goods and services they want from abroad. But many also worry that a persistent trade deficit could lead to lower employment and economic growth in the United States.^[9]

Wealth-producing sector jobs in the U.S. such as those in manufacturing and computer software have often been replaced by lower-paying wealth-consuming service sector jobs such as those in retail and government when the economy recovered from recessions.^[10]^[11] Some economists contend that the U.S. is borrowing to fund consumption of imports while accumulating unsustainable amounts of debt.^[3]^[12]

In 2006, the primary economic concerns focused on: high national debt ($9 trillion), high non-bank corporate debt ($9 trillion), high mortgage debt ($9 trillion), high financial institution debt ($12 trillion), high unfunded Medicare liability ($30 trillion), high unfunded Social Security liability ($12 trillion), high external debt (amount owed to foreign lenders) and a serious deterioration in the United States net international investment position (NIIP) (−24% of GDP),^[3] high trade deficits, and a rise in illegal immigration.^[12]^[13]

These issues have raised concerns among economists and unfunded liabilities were mentioned as a serious problem facing the United States in the President's 2006 State of the Union address.^[13]^[14] On June 26, 2009, Jeff Immelt, the CEO of General Electric, called for the U.S. to increase its manufacturing base employment to 20% of the workforce, commenting that the U.S. has outsourced too much in some areas and can no longer rely on the financial sector and consumer spending to drive demand.^[15]

In 1985, the U.S. had just begun a growing trade deficit with China. During the 1990s, U.S. trade deficit became a more excessive long-run trade deficit, mostly with Asia. By 2012, the U.S. trade deficit, fiscal budget deficit, and federal debt increased to record or near record levels following accompanying decades of the implementation of broad unconditional or unilateral U.S. free trade policies and formal trade agreements.^[16]^[17] The overall U.S. trade deficit widened 12.2 percent in 2022 to nearly $1 trillion as Americans bought large volumes of foreign machinery, pharmaceuticals, industrial supplies and car parts, according to new data released by the Commerce Department.^[18]

The US last had a trade surplus in 1975.^[19] However, recessions may cause short-run anomalies to rising trade deficits.

References

^ Joseph A. Schumpeter, "The Decade of the Twenties", American Economic Review vol. 36, No. 2, (May, 1946), pp. 1–10 in JSTOR
^ The shift away from thrift.The Economist, April 7, 2005.
^ ^a ^b ^c Bivens, L. Josh (December 14, 2004). Debt and the dollar Archived December 17, 2004, at the Wayback Machine Economic Policy Institute. Retrieved on July 8, 2007.
^ Gramer, Robbie (March 6, 2017). "Economists Take Aim at Trump Trade Theory — Again". Foreign Policy. Retrieved March 12, 2017. Navarro's comments drew skepticism from trade experts and economists across the political spectrum, who said that line of thinking on economics was flawed. Economists say trade deficits aren't an indication of good or bad economic times, but rather a function of savings and investments. (The United States enjoyed a stellar trade surplus during the Great Depression in the 1930s, for example.) "He won't find economists — either on the left or the right — that believe trade deficits are this huge a problem", Chip Roh, a former assistant U.S. trade representative and trade lawyer, told Foreign Policy. "It doesn't make economic sense." "When economists hear, 'Our goal is reduce the trade deficit,' it baffles us", Gordon Hanson, a trade economist at the University of California, San Diego, told FP. "He's either using it as a cheap political ploy or there's a misconception — he doesn't understand how it operates."
^ "Analysis: Trump rails against trade deficit, but economists say there's no easy way for him to make it go away". Washington Post. Retrieved March 12, 2017. At a conference Monday morning in Washington, Peter Navarro, the director of Trump's National Trade Council, reiterated the administration's focus on the trade deficit. The Trump administration policy is one of "free and fair and truly reciprocal trade that begins and ends with the belief that bilateral trade deficits do indeed matter", he said. "Trade deficits not only matter when it comes to jobs and growth and national security, they matter a great deal", Navarro said. Many economists disagree with this claim, saying that the factors behind the trade balance can be complex — and that the trade deficit is far from the best economic metric for policymakers to target... In an interview Monday, Angus Deaton, who won the Nobel Prize for economics in 2015, called the administration's attitude on trade deficits "an old-fashioned mercantilist position". "If you stand on a platform, it makes you six inches taller", he said. "It's a ridiculous argument."
^ "Trump warns of trade deficits. Economists say, who cares?". Public Radio International. Retrieved October 17, 2017.
^ "www.igmchicago.org/surveys/trade-balances". www.igmchicago.org. Retrieved October 27, 2017.
^ "What Is the Trade Deficit?". The New York Times. June 9, 2018. ISSN 0362-4331. Retrieved June 10, 2018. The vast majority of economists view it differently. In this mainstream view, trade deficits are not inherently good or bad. They can be either, depending on circumstances.
^ Swanson, Ana (2023). "America's Trade Deficit Surged in 2022, Nearing $1 Trillion". New York Times.
^ Hira, Ron and Anil Hira with foreword by Lou Dobbs, (May 2005). "Outsourcing America: What's Behind Our National Crisis and How We Can Reclaim American Jobs". (AMACOM) American Management Association. Citing Paul Craig Roberts, Paul Samuelson, and Lou Dobbs, pp. 36–38.
^ David Friedman, New America Foundation (June 15, 2002).No Light at the End of the Tunnel Archived December 19, 2007, at the Wayback Machine Los Angeles Times.
^ ^a ^b Phillips, Kevin (2007). Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism. Penguin. ISBN 978-0-14-314328-4.
^ ^a ^b Cauchon, Dennis; Waggoner, John (October 3, 2004). "The Looming National Benefit Crisis". USA Today.
^ George W. Bush (2006) State of the Union. Retrieved on April 17, 2009.
^ Bailey, David and Soyoung Kim (June 26, 2009). "GE's Immelt says U.S. economy needs industrial renewal". UK Guardian. Retrieved on June 28, 2009.
^ https://www.census.gov/foreign-trade/statistics/historical/gands.txt ^{[dead link]}
^ "FTD – Statistics – Country Data – U.S. Trade Balance with World (Seasonally Adjusted)". Census.gov. Retrieved October 17, 2017.
^ Swanson, Ana (2023). "America's Trade Deficit Surged in 2022, Nearing $1 Trillion". New York Times.
^ "American Spaces – Connecting YOU with U.S." USInfo.org. Retrieved October 17, 2017.