The trade deficit of the United States was approximately 500billion in 2016. This figure is derived from subtracting the exports of $2.2trillion from the net imports of $2.
7 trillion (Soergel, 2017). We can see thatthis is an increase since 2013 when the deficit was about $475 billion. Thereason why the deficit is higher in 2016 than it was in 2014 was because thestrength of the dollar has increased by 25 percent since then. In 2006 the deficitwas much greater than it was in 2016 with a total of $760 billion (Soergel,2017). The decrease from 2006 to 2016 can be attributed to the fact that U.S.exports have been growing at a greater rate than the imports have been. Theprincipal drivers for the trade deficit are cars and consumer products.
TheU.S. import about $580 billion in televisions, generic drugs, household itemsand clothes in 2016 but it only exported $190 billion (Soergel, 2017). Thisadded $390 billion to the deficit. As for cars, the U.
S. exported only $150 billionbut imported $350 billion of cars and parts; this added another $200 billion tothe trade deficit (Soergel, 2017). Anotherdriver for the trade deficit was the petroleum imports which fell in 2016. We imported approximately $140 billion inpetroleum based products, which would include fuel oil, natural gas, crude oiletc. The $140 billion in 2016 was much lower than the $310 billion from 2012.This can be attributed to the over development of the oil fields, we now havean abundance of oil which drives the cost down (Soergel, 2017).
The UnitedStates is a country that exports many services. In 2016, the U.S. exported $250billion more than it imported, which means they are considered competitive inthe international market (Soergel, 2017). It is this surplus in exports thathelps balance out the lack in goods. There aremany factors that can affect the trade balance. One of these factors is theprice of production in the manufacturing country versus the importing country.These production costs could be labor cost, taxes for the business, incentivesor even capital.
The cost of raw materials is another thing that could be afactor that affects the balance of trade. There arealso many issues with the collection and measuring of the data to calculate thetrade deficit. This can be seen when all of the countries data is added up andthe exports are higher than the imports.
If the calculations were 100 percentaccurate then the exports should offset the imports and there should anagreement between the two throughout the world but we can see that this is notthe case. The discrepancy between the world imports and exports can possibly bethe result of transactions that are made in order to evade taxes or laundermoney. This is true for developing countries especially where the transactionstatics may be skewed (Beladi,H.
, & Oladi, R., 2014). It is acommon misconception that trade deficits are bad because the deficit reducesthe GDP.
Therefore if the GDP is negatively affected then people believe that atrade deficit is a bad thing. They think that this is threat and that it will affectthe U.S.
currency. There is an underlying thought that if the GDP is decreasedthen there is a weak economy; on the surface this seems to make sense. When wetake closer look at the numbers on this theory we can see that in the 1990’sthe U.S. had significant trade deficits but instead of the GDP being negativelyaffected it actually increased. Thus this disproves the fact that the tradedeficit has a negative effect on the GDP (Beladi, H.
, & Oladi, R., 2014). According tothis data the GDP and the trade deficit have a positive correlation with eachother.
The U.S. is a demand based society that also has a negative savings rate.Another factor that will increase the trade deficit is that the U.S. willbecome more of a service based society rather than a production based society (Beladi, H.
, & Oladi, R., 2014).The U.S. is producing and manufacturing less on its own and importing more as itsless expensive getting products from the outside. The trade deficit imbalance lookslike it will be inevitable. Protectionismis the implementation of tariffs and taxes by a country in which it discouragesimporting from other countries (Irwin, 2017). This is meant to protect thecountries producers and manufacturers from the foreign competitors.
But thisprotectionism policy rarely benefits the producers and manufacturers and itmainly hurts the consumers, it has a negative effect on the economy. It isbelieved by economists that free trade is actually better for the economybecause free trade creates more job opportunities than does protectionismpolicy (Irwin, 2017). Manyeconomists believe that protectionism would only benefit the economy if it wasused short term in order to protect new businesses by protecting them from foreigncompetition until they become large enough to handle the competition (Irwin, 2017).On the other hand this approach is faulted because it allows the government tohand select businesses to succeed where as they may not have on their own. As we lookback into history we can see that protectionism has been the cause for manywars like the American Revolution. The American Revolution was started becauseof the tariffs and taxes imposed on the American people by the British (Irwin,2017). Some of the products being imported are necessary for the country whichit cannot produce or manufacture on its own.
In myopinion, we should not be implementing any tariffs or taxes on imports. It hasa negative impact on the economy in the long run. The less involvement we havein the policies the better it will be for the economy in the U.S. There aremany political agendas at play when implementing new trade policies and theymay help one party but they almost always have a negative impact on themajority of the population.
More harmthan good may come out of these situations and we need to be very careful thatwe understand the downstream effects of our decisions as they will inevitablyhave an effect on the economic situation of the country.