Question

Should the U.S. prioritize lowering the trade deficit? Why or why not? BE AS DETAIL AS POSSIBLE

Answer 1

Many analysts and trade experts do not believe that trade deficits are harming the economy, warning against attempting to "win" the trade relationship with countries. Others, however, think that persistent trade deficits are always a concern, and there is considerable debate about how much of the trade deficit is triggered by foreign governments, as well as what strategies should be followed to minimize it, if any.

A trade deficit happens when a nation imports more than they export. For example, the US exported $2,500 trillion in goods and services in 2018 while it imported $3,121 trillion, leaving a trade deficit of $621 billion. Services such as tourism, intellectual property, and finance account for roughly one-third of exports, while major exported goods include aircraft, medical equipment, refined petroleum, and agricultural commodities.

Meanwhile, capital goods, such as computers and telecom equipment, dominate imports; consumer goods, such as apparel, electronic devices, and automobiles; and crude oil.The balance of imports and exports, or the balance of trade, is part of the wider measure of the transactions between the US economy and the rest of the world, known as the balance of payments. The balance of payments of the economy is made up of the balance of trade, or current account, and financial accounts, or estimates of the acquisition and selling of foreign assets by the United States. Financial accounts include financial assets as well as foreign direct investment (FDI), such as stocks and bonds. These accounts generally balance, as a current account deficit the trade deficit is the result of a corresponding financial account surplus as foreign capital flows into the country and investment.

Commercial deficits have been scapegoated, and the trade deficit is not a problem for the US economy itself. That's because the result of a stronger economy can be a larger trade deficit, as consumers spend and import more while higher interest rates make foreign investors more eager to place their money in the United States. Measuring trade policy by the scale of the deficit in goods is possibly not a grade that passes in the basic economic class

The unique role of the US economy in delivering liquidity to the global economy and driving global demand makes the US trade deficit a central factor in global economic stability. The role of the dollar as the global reserve currency and the primary instrument for global transactions means that many other countries rely on holding dollar reserves, creating massive demand for US financial assets. That means the US pays little for its foreign borrowing, enabling it to finance its high low-cost consumption, which boosts global demand. Trade boosts the economy as a whole by lowering prices and rising productivity

Instead of protecting the struggling industries, he says, policy should be focused on giving people the ability to compete and thrive in an ever changing world. Traditional ways of measuring economic health, such as gross domestic product (GDP) and trade figures, are unable to account for the rapid development of the digital economy and the different types of employment it creates.

So much emphasis on the trade deficit could lead to a resurgence of protectionism and a new global trade war that would make everyone worse off, especially in an age of supply chains that cross many frontiers. Promises that tariffs on imports from China or elsewhere would revive manufacturing, they argue, neglect that technology plays a much greater role in deindustrialization than trade does, and that the U.S. economy started to turn away from manufacturing long before trade deals proliferated in the 1990s.

It is easier to understand that the trade deficit is not all good or all bad, but instead is made up of trade-offs: the US economy gains from foreign imports and investment, even though a high deficit displaces some jobs and adds to the national debt.