Is the US Trade Deficit a Problem?

united-states-balance-of-trade

Do you think the U.S. trade deficit is a problem or not? Please feel free to share your thoughts based on our lectures, the video above as well as a recent op-ed written by Peter Navarro (Director of the White House National Trade Council) for the Wall Street Journal. 

 

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Author: Sheng Lu

Professor @ University of Delaware

4 thoughts on “Is the US Trade Deficit a Problem?”

  1. According to the theory of international trade, a long-term trade deficit is unsustainable for a country since it will lead to currency devaluation, thus affecting the domestic economy. However, the United States keeps the country running on the lasting trade deficit without collapsed economy. One of the key factor is that dollar is an international currency. Many countries have to hold the dollar for international trade. In that case, the foreign exchange(dollar) reserves by those government or central bank(e.g. China’s foreign exchange reserves increased by $7 billion to $3.005 trillion in February 2017 from $2.998 trillion in January.) It is because of the rigid demand, dollar is very difficult to devaluation. Meanwhile, other countries who have kept great amount of dollar reserves do no t want the dollar’s depreciation as well. On the other hand, the United States is using “money” to exchange the other countries’ “goods” in the international trade. Although there is a “currency” deficit, the country is enjoying a “goods” surplus. Adequate domestic materials and supply, mature market and benign competition, reasonable life expenses and rich national life, all these phenomenon indicate that the country is running in a healthily and stably, and this is the most important for a government than whether a half-trillion-dollar trade deficit with the rest of the world makes the United States a loser.

  2. Your comment goes much deeper than our class discussion on trade deficit The impact of exchange rate on trade remains a heated debate in academia. For example https://www.imf.org/en/News/Articles/2015/09/28/04/53/sores092815b
    Like you said, if market forces work, there will be a dynamic balancing between a country’s trade deficit and its currency value. For example, a growing trade deficit will decrease the value of the U.S. dollar, which, however, will boost U.S. exports and reduce imports.
    On the other hand, some argue that the conventional trade statistical system couldn’t reflect the nature of the global supply chain today: https://www.brookings.edu/opinions/value-added-trade-and-its-implications-for-international-trade-policy/

  3. I think the U.S. trade deficit is a problem because the country is consistently spending more than it earns meaning they have to borrow money or attract investors from abroad. Borrowing money puts the U.S. in a vulnerable position because if they are unable to pay back the money on time, interest can accumulate putting the country into even further debt. Since most manufacturing jobs are done overseas, the U.S. is importing much more than they export. Manufacturing jobs in the U.S. have dropped from 26.4% in 1970 to 8.5% in 2016.
    Although the trade deficit does have some benefits such as lower prices for consumers and higher wages for U.S. employs, if this deficit continues the U.S. economy could crash due to spending what we do not have. Its hard to say for sure if the trade deficit is a good or bad thing because it depends on the status of the U.S. economy at the time. When the economy is doing well trade deficit benefits are greater than its negatives, but during a recession a trade deficit can severely harm the U.S. economy. The flow of the U.S. economy can change at an anytime, as seen with the recession in 2008, which is why I believe the U.S. trade deficit is a problem due to this uncertainty.

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