Mar 31

Everything you need to know about the trade deficit

President Donald Trump signed two executive orders related to trade Friday, telling reporters that he was following through on a campaign promise to protect domestic manufacturing and American workers.

As part of the orders, Trump says that the United States will “review… America’s trade deficits and all violations of trade rules that harm the United States.” Members of the administration termed the violations “trade abuse” and indicated that countries are manipulating the prices of goods in order to export at greater volumes.

A trade deficit refers to a negative value in the worth of a country’s exports versus its imports. When Trump says that the U.S. has a trade deficit, it means that the total worth of all goods purchased and brought into the country is greater than the worth of those sold to other nations. The inverse of a trade deficit is a trade surplus.

According to the U.S. Census Bureau, the balance of trade in goods and services for 2016 was a deficit of $500.5 billion. The U.S. imported $2.712 trillion worth of goods in services while exporting $2.212 trillion.

The deficit has fluctuated year-by-year for decades but was relatively stable under the presidency of Barack Obama, falling from $708.7 billion in 2008 to $383.8 billion in 2009 and remaining in a range between $461.9 and $548.6 billion for the next seven years.

The last time the U.S. had a trade surplus was in 1975 when it was $12.4 billion. The deficit peaked at $761.7 billion in 2006.

Advisers to Trump cautioned that the executive orders were not specifically directed at China, but noted on a call with reporters Thursday that the country is the U.S.’s biggest single trade partner and accounts for the largest percentage of the trade deficit.

Out of a trade deficit of $734.3 billion in goods alone in 2016, China made up just over 47 percent at $347 billion. Therefore, any action taken as a result of the executive order that reduces Chinese imports to the U.S. would likely also decrease the total deficit.

Trump portrayed the U.S. as losers in international trade throughout his presidential campaign, but economic theory is split over whether maintaining a trade deficit is harmful. The ability to import inexpensive goods and materials enables domestic businesses to produce and sell their own products at lower costs and higher margins and savings can be passed to consumers.

“Imports increase consumer choice, and help keep prices low raising the purchasing power for consumers,” explains the website of the Office of the United States Trade Representative. “Imports also provide high quality inputs for American businesses helping companies and their U.S. employees become or remain highly competitive in both domestic and foreign markets.”

Conversely, U.S. exporters face competition from international exporters that can sell at less expensive rates, which may hurt their bottom lines and lead to a reduction in domestic investment and jobs as they lose out on business.

Trump’s move Friday to direct the government to identify “cheaters” in international trade — potentially those who artificially reduce prices — could allow U.S. companies to better compete in the export marketplace, reducing the overall deficit, but also increasing the price of imports arriving. Ultimately, it could mean more jobs or job security in American manufacturing, but higher prices on goods across the nation.

The post Everything you need to know about the trade deficit appeared first on ABC 36 News.

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