Economics, business: the US trade deficit: good or bad? (Part 0)

Reading about economics means self-tutoring. The tutor discusses the disadvantage – or advantage, of the US trade deficit.

The US has run a trade deficit since the late 70s. Simply put, a trade deficit means that the country’s imports are worth more than its exports. The US trade deficit is famous; for 2016 it was 502.3 billion.

Old-time wisdom suggests that a trade deficit, long-term, is bad, since it means wealth is leaving the country. The departing wealth is either savings being spent, or else household debt increasing.

Yet Senator Lankford, of Oklahoma, argues the US trade deficit is likely helpful to America. He makes the following arguments:

  1. Americans import goods to save money (because the same goods, if made in America, would cost more). The money Americans save by buying imports, they can re-invest in their businesses. Therefore, importing goods indeed can lead to increased investment in America with the savings from those cheaper goods.
  2. Take Mexico, for example. If the US runs a trade deficit with Mexico, the Mexicans become more prosperous. The US will enjoy at least two benefits of Mexican prosperity:
    • Fewer Mexicans will want to illegally migrate to the US.
    • Mexicans will have more money to spend on goods, some of which they will import from America.
  3. The US trade deficit includes foreign investment in US companies. Since investment in US businesses increases American productivity, the part of the US trade deficit due to it should be welcomed, not criticized.

Lankford seems to believe that as long as trade is open and fair, where its balance sits is not for the government to influence. The reason Americans run a trade deficit now is because they perceive it benefits them. They are following the laws of economics and should be allowed to do so.

Source:

www.bea.gov

www.investopedia.com

www.washingtonpost.com

Jack of Oracle Tutoring by Jack and Diane, Campbell River, BC.

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