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Current Issue: US Trade Deficit
Recently, such news outlets as Reuters, CNBC, and Market Watch have reported that the US trade deficit has reached its highest record. According to Mutikani (2021), in August 2021, the US trade deficit rose to $73.3 billion, although economists predicted that it would amount to $70.5 billion. The deficit resulted from a rise in imports, probably caused by businesses replenishment of inventories depleted during the COVID-10 pandemic.
What Is Trade Deficit?
A trade deficit occurs when the countrys imports exceed its exports. According to Mutikani (2021), in the US, imports of goods and services reached $287 billion in August 2021. The leading imported products were consumer goods, including toys, sporting goods, games, and pharmaceutical preparations (Mutikani, 2021). During the same period, US exports amounted to $213.7 billion, which is the highest value since May 2019 (Mutikani, 2021). The main exported products were natural gas and nonmonetary gold. At the same time, the exports of motor vehicles and capital goods such as industrial machinery decreased. Thus, US imports exceed its exports by $73.3 billion, which comprise the countrys trade deficit.
The Meaning of Trade Deficit
A trade deficit cannot be considered an entirely positive or negative phenomenon. Its main advantage is that it allows the country to consume more goods and services than it produces, which enables it to survive in challenging economic times. Hayes (2021) argues that, in the case of the US, a trade deficit is likely to denote the countrys attractiveness to foreign investments. If the money from overseas investors is used wisely, it may contribute to the countrys economic growth. People often worry that a trade deficit leads to increased unemployment. However, a study conducted by Le and Baker (2020) revealed that wider use of technology has a more negative impact on employment than a trade deficit, and reducing a trade deficit would have little effect on unemployment. These researchers also found that the effect of a trade deficit on GDP in the US was also insignificant (Le & Baker, 2020). However, the issue of a trade deficit may need government consideration to avoid negative long-term consequences.
References
Bureau of Economic Analysis. (2021). U.S. international trade in goods and services, Web.
Hayes, A. (2021). Trade deficit: Advantages and disadvantages. Investopedia. Web.
Le, T. V., & Baker, W. (2020). The effects of trade deficit on output and employment: Evidence from the U.S.s economy. International Economics and Economic Policy, 17, 877895.
Mutikani, L. (2021). U.S. services activity forges ahead; trade deficit races to record high. Reuters. Web.
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