Part 1. Much ado about trade deficits

America’s trade imbalance is a growing political concern

 

In an increasingly polarized America, Democrats and Republicans agree on very little. One exception is America’s growing trade deficit, which has drawn the ire of both parties.

The common narrative is that America’s trade imbalance threatens our livelihoods. The deficit costs jobs, depresses wages, and accelerates the decline of American manufacturing.

It’s true that America buys a lot more than it sells. The question is whether the trade deficit is really that dangerous for the US economy.

Not everyone agrees. Economists say we ought to keep calm. While “deficit” always sounds like a bad word, economists point out that Americans get something in return for the deficit – namely, access to affordable products that increase our standard of living.

Which side of this argument is correct? Are politicians right to be concerned?

The following series tries to separate fact from fiction. We discuss where the deficit comes from and evaluate the core debates relating to jobs, wages, and America’s place in the global economy.

First, let’s set the table with some simple numbers. In 2017, America’s deficit swelled to $566 billion, a sum that grew throughout 2018. To put that number in perspective, the US runs a deficit about five times larger than any other economy in the world. Most of this deficit is with America’s top trade partners – China and Mexico.

 
 

It hasn’t always been this way. Over the last two decades the deficit has widened significantly, with the notable exception of the Great Recession.

 
 

The deficit continues to grow in spite of several attempts to re-balance America’s trade relationships. Hence, the widespread concern we hear about how America is disadvantaged – and falling behind.  

Before addressing that debate, we have to ask: who – or what – is to blame for the deficit? The next post in this series discusses the deficit’s origins.