Question

Is having a trade deficit necessarily bad for the United States?

Answer 1

A trade deficit occurs 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. Resources such as tourism, intellectual property, and finance account for approximately one-third of exports, while significant exported products include aircraft, medical supplies, 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 trade deficit is not an problem for the US economy by itself. That's because the consequence of a stronger economy can be a greater trade deficit, as consumers buy and import more and higher interest rates make foreign investors more likely to put their capital in the United States. Economists emphasize that the U.S. economy's unique position in supplying liquidity to the global economy and driving worldwide demand makes a U.S. trade deficit essential to global economic stability. The position of the dollar as the global reserve currency and the primary instrument for global transactions means that many other countries depend on keeping dollar reserves, generating huge demand for US financial assets.

Policy should focus on giving people the ability to compete in an ever-changing world and flourish. Economists also note that traditional ways of measuring economic health, such as gross domestic product ( GDP) and trade statistics, are struggling to account for the rapid growth of the digital economy and the new types of jobs it creates.