Trade between countries is a contentious topic as of late. In 2016, the United States’ trade gap (the difference between what we buy from abroad vs. what we sell abroad) rose to $502 billion, marking the 41st consecutive year in which we have run a trade deficit. The last time the U.S. ran a trade surplus was 1975.
A small silver lining exists that the trade deficit has shrunk from higher levels a decade ago as the U.S. imports less oil and has actually started to export some oil and liquefied natural gas.
Americans tend to buy lots of foreign-made things – from autos to cell phones to TVs and clothing. As we have transformed from a manufacturing-based economy to one more reliant on services, we don’t sell nearly as much stuff abroad as we used to, therefore we run a trade deficit. Before we label trade deficits as inherently bad, we must examine how trade balances affect different areas of the country and economy.
Trade deficits, even in times of strong growth such as the late 1990s, have negative, concentrated impacts on the quantity and quality of jobs in the parts of the country where manufacturing employment shrinks. The deindustrialization of America’s Rust Belt is partly explained by consumers meeting their domestic demand for goods by buying more imports than domestically-produced goods. When Detroit failed to produce fuel-efficient cars at a time when gasoline prices were skyrocketing, consumers voted with their pocket books and started buying Datsuns, Toyotas and Hondas.
While some may yearn for the unrealistic nostalgia of the 1950s economy that existed before global supply chains, international trade today offers benefits for American consumers, who save money by buying cheaper foreign goods. The U.S. also attracts overseas investment, which drives demand for dollars.
Reversing the decades long trend of more imports and fewer exports will take a long time as U.S. consumption patterns will have to change as will the mix of goods manufactured in this country.