US Trade Deficit – Trade Agreements are Part of the Solution

< Back to all news

US Trade Deficit – Trade Agreements are Part of the Solution


Category: Trade

Over the years, Americans have grown accustomed to regular press accounts of the U.S. trade deficit. But in 2012 — for the 20 countries with which the United States has entered into a free-trade agreement (FTA) — the trade deficit vanished.

That’s right: It disappeared, and it hasn’t come back. Unnoticed at the time, the United States recorded a trade surplus with its 20 FTA partner countries in 2012.

Is this a big deal? No and yes.

No, because the trade balance is a poor measurement of whether a nation is prospering. In recent decades, the U.S. trade deficit has tended to expand during periods of vigorous economic growth and job creation (e.g., the late 1990s) and contract during times of economic distress (e.g., the 2008-2009 financial crisis).

As taught in any Economics 101 course, when a country invests more than it saves, the shortfall appears in its national accounts as a trade deficit.

Making value judgments about these issues can leave you tied up in knots: After all, what policymaker doesn’t like both investment and savings? By the same token, exports can drive growth, but so do imports of machinery for a factory or IT products that enhance our productivity.

Source: US Chamber of Commerce

Published: December 9, 2014