US Trade Deficit: Causes, Impact, and Solutions - Essay Sample

Introduction

Trade deficit displays the arithmetical discrepancy between a nation's exports and imports of commodities and services (Jackson, 2014). In the United States, trade discrepancies have been on an upward trajectory since World War 11 (Jackson, 2014). Some commentators argue that trade deficits cost U.S. citizens job on annual basis. Most economists state that trade deficit originates mainly from the nation's macroeconomic strategies, and variation between savings and investment in the economy (Jackson, 2014). Trade creates both monetary benefits and costs for a nation, which leads to positive growth of an economy (Jackson, 2014). Two years ago, President Trump delivered an 'Executive Order' directing key organizations to prepare a written statement, and submit within three years on significant trade deficits with US trading partners (Jackson, 2014). The report should include, how unfair trade practices will be dealt, and assess the effect of the trade deficit on U.S. production, job creation, wages, and regional security (Jackson, 2014).

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Statement of Your Opinion

The fiscal effects of the U.S. trade discrepancy have long been a subject of prolonged congressional interest (Jackson, 2018). Currently, the U.S. Constitution gives power to Congress to control trade with foreign nations, and how taxes will be collected (Jackson, 2018). In some instances, the Parliament has substituted certain powers over trade policy to the executive wing: For instance, trade negotiations with oversees countries and how the nation will benefit from the trade (Jackson, 2018). As part of measures to assess U.S. trade policy and critical trading associations Congress, and previous governments have concentrated on regulating trade deficits. They have focused on executing trade laws and deliberating U.S. free trade agreements (FTA) (Jackson, 2018).

The current regime led by President Trump is using U.S. trade deficit as an indicator for assessing the achievement or letdowns of international commerce system, U.S trade policy, and bilateral trade relations with other nations (Jackson, 2018). This method differs from the opinions of most analysts, who argue that the entire U.S trade deficits emanate U.S. macroeconomic plans that generate a reserves and investment disparity, where local sources are capital are not adequate to satisfy domestic capital requirements (Jackson, 2018). In such circumstances, trying to change the trade deficit without solving the existing macroeconomic problems could develop distortion in the U.S. economy (Jackson, 2018). Some analysts contend that trade agreements contribute greatly to reducing U.S. trade deficit. However, they indicate that these trade agreements have failed U.S. producers to augmented competition (Jackson, 2018). Most economists, however, question both the role that trade agreements contribute in determining the trade deficit, and the stance that the trade deficit is significantly the product of the unjust treatment.

Alternate View Points

Alternate views have also emerged on the effects of the deficits on the U.S. economy. They suggest that if the U.S. trade shortfalls are a transitionary stage in the changing aspects of augmented global economy integration via the restructuring of resources in different countries, then both the U.S. economy and other nations should be evident (Jackson, 2018). The basis of that argument is based on classical theory. Divergent opinions have also been stated to accentuate the outlays of the large trade deficits within the U.S. economy. (Jackson, 2018). Some of these observers maintain that the augmented imports have greatly instigated the continuously deteriorating portion of manufacturing productivity in the U.S. economy, and has therefore led to the enormous job loss and decline in productivity (Jackson, 2018).

Furthermore, these opponents also perceive that decreased salaries for workers and the increasing wage variation have been as a result of augmented trade debits. Some viewers have also provided positive comments regarding the effects of trade deficit on the economy. For instance, during the global fiscal disaster of the 1990s, augmented U.S. import demand helped to bail out the nation from the economic disaster. Moreover, there are still some critics who have provided a diversionary opinion on the effect of the large U.S. deficits (Jackson, 2018). They state that large trade deficits show unfair indication of the global economic system, where the U.S. economy benefits the most to the expense of others (Jackson, 2018).

Real-World Economic Implications

Most economists admit that trade deficits adversely affect the U.S. economy through job loss, reduced wages, and unequal distribution of resources (Hong, 2001). One main concern expressed by economists is the accumulation of debts led by sustained trade deficits (Hong, 2001). They contend that long term effect on the U.S. economy of borrowing to finance imports depends on whether those funds will be used to general income or capital with greater returns (Hong, 2001). However, most nations borrow money to spend on recurrent expenditure which augments their debt accumulation at the detriment of the economy.

Basic economic concepts also recognize that some workers and producers in the economy may experience an uneven share of the short-term change in costs that are caused by shifts in resources originating from increased international competition (Jackson, 2018). However, the adjustment costs for businesses and labor are difficult to determine, some projections imply they may be great over the short run and can include dislocations for some segments of the labor force, companies, and communities (Jackson, 2018).

Fig 1: U.S. Goods and Services Trade Balance, 1960-2016. (Mc Bride & Chatzky, 2019).

The above graph shows the U.S. goods and services trade balance between 1960 and 2016 (Mc Bride & Chatzky, 2019). In the graph, it is evident that the shortage with China grew intensely at the start of 2008 from an average of $34 billion in the 1990s (Mc Bride & Chatzky, 2019). Most analysts refer to this as the "China Shock", and was caused by the unpredictably fast development of China's export industrial segment during that period. It practically occurred when Beijing implemented comprehensive monetary reforms and designed policies to subsidize production, increasing industrial development, and increase exports (Mc Bride & Chatzky, 2019).

Summary of Opinion

To merge both views on the effects of trade deficits on the economy of U.S., it is evident that trade deficits adversely affect the level of production, and lead to job loss within an economy (Jackson, 2018). This generally impacts the consumer index and purchasing power of citizens since when there are no jobs, it means people will not be capable of acquiring new items or meeting the basic needs. However, on a positive note, it helped to bail out US, during the global financial crisis in 1990 (Jackson, 2018).

Conclusion

In conclusion, the paper has comprehensively examined both positive and negative effects of trade deficits on the U.S. economy, in relation to other nations such as China. Trade deficits negatively affect equitable allocation of resources, leads to job loss, reduced wages which also cause decreased productivity. For example, "China Shock", and was caused by the unexpectedly rapid growth of China's export manufacturing segment during that period. It is because U.S. greatly concentrated on importing more commodities than what they exported.

References

Hong, P. (2001). Global Implications of the Us Trade Deficit Adjustment. UN/DESA Discussion Paper, (17). Retrieved from: https://www.un.org/esa/esa01dp17.pdf

Jackson, J. K. (2018). Trade Deficits and US Trade Policy. Congressional Research Service, (Erisim Tarihi: 07.09. 2018) https://fas. org/sgp/crs/row, 45243. Retrieved from: https://fas.org/sgp/crs/row/R45243.pdf

Jackson, J.K. (2014). The U.S. Trade Deficit: An Overview. Congressional Research Service. Retrieved from: https://fas.org/sgp/crs/row/IF10619.pdf

Mc Bride, J. & Chatzky, A. (2019). The U.S. Trade Deficit: How Much Does It Matter? Council on Foreign Relations. Retrieved from: https://www.cfr.org/backgrounder/us-trade-deficit-how-much-does-it-matter