Question

What does the US trade deficit since 1970 tell you about jobs gained and lost as trade, as a percentage of GDP, has increased? Who were the winners and who were the losers? How do you think this issue affected the 2016 election if so?

Answer 1

Solution

Trade Deficit is a scenario where a country's imports outweight it's exports.In case of the US,in the 1960s uptill 1970,it use maintain either a small trade surplus (or) at most a small trade deficit.But after 1970s it's trade deficit began to increase drastically.

There are several reasons for the same :

- The US Dollar strengthened relative to all the other countries which in turn made the US exports costlier for the consumers in the other countries but at the same time made the imports cheaper for the US consumers.So,the imports decreased as demand for the same increased and the exports decreased / posted low growth rates.

- The US exports became less competitive in the international market due to increase in the value of the US Dollar.

- Due to the debt problem of the south american countries although imports to the US from the same countries increased but the exports from the US to those countries have reduced / remaned flat

- Countries like the China,South Korea provided subsidies to the producers in their countries which made their exports cheaper to the US so the US' s trade deficit with those countries increased.

In 2019,the US Trade deficit as a percentage of GDP stood at around 2.9% of GDP whereas it was maintaining a trade surplus of 0.37% in the year 1970

The major contributors to the rise of it's trade deficit over the years from 1970s are capital goods,electronic devices,consumer goods like automobiles,apparels,etc.,Since the standard of living of the US citizens increased coupled with the strenghtening of the US Dollar,lead toincrease in these imports.

Winners-

Loosers - Steel Industry,Consumer Goods,Apparels,Electronic & Telecom equipment manufacturers, otehr majority manufacturing sector except the winners) etc.,

Winners - Financial sector,Refined petroleum,Aircraft manufacturing,Medical Equipment,Tourism.IP,etc.,

Due to high trade deficit,the interest rates in the country has not reduced.The savings and investment rates have kept falling down in the economy.To cope up with the deficit, the govt.kept the tax rates high enough.The manufacturing sector almost died in the US.So the economy's dependence on the service sector increased a lot.

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