U.S. Trade Imbalance Trending Behavior

Since the early 1990’s the United States has and continues to suffer trade imbalances, or trade deficits, of substantial and growing proportions with several foreign nations. For those unfamiliar with the term balance of trade (BOT), it is simply the difference between a country’s imports versus its exports. For nearly 2.5 decades U.S. leadership has apparently permitted (to the extent supported) this economic disparity to manifest into an extremely lopsided trading relationship with certain foreign countries.*

For example among the top 15 nations that trade with United States the top five – China, Japan, Mexico, Germany and Canada – are the worst abusers with BOT from 2008-2014 totaling $8.188+ trillion in imports compared to U.S. $4.039+ trillion in exports, according to the U.S. Census Bureau (see table below; right click on image and select “view image” to enlarge). So the obvious question is why do America’s elected representatives allow this BOT trending behavior to continue?

According to an article by Economy in Crisis one root cause is “policy decisions including the WTO, NAFTA, CAFTA, KORUS and other so-called one-way ‘free trade’ agreements [that] have eliminated laws regulating what other countries can ship into this country.” Essentially foreign nations have unfair advantages when it comes to cost of labor, government subsidies, taxes, etc. that make it nearly impossible for U.S. companies to compete on a price basis.

While critics of free-trade agreements highlight the aforementioned as reasons why the U.S. economy has such extreme balance of trade deficits, as noted by The Economist, advocates of protectionism and high trade tariffs fail to pay heed to the principals of economist Adam Smith who believed people “should buy products from where they were cheapest” and that “countries need to ‘increase imports to increase exports’ to boost economic growth.”

Perhaps then the issue of trade imbalance is not free-trade agreements with foreign nations but rather the U.S. tax system, which is commonly cited by numerous sources, including the Tax Policy Center, as a key problem because the cost of doing business in American. The current tax policies are forcing companies to “locate assets and economic activity, and earn and realize profit, in other countries where taxes are lower”, which drives down U.S. exports while increasing U.S. imports.

*Disclaimer: The importance of trade deficits and trade surpluses vary depending on a country’s economic activity and business cycle. For instance, according to Investopedia, “a trade deficit is not a good thing during a recession but may help during an expansion.”


Edmund Burden

I help business owners grow their businesses through effective use of financial technology tools. Personal finance is a passion of mine so I try to stay on top of all the trends and write about where I see the market going.

Other Articles by Edmund Burden

U.S. Economy: The Game of Political Smoke & Mirrors Continues

On February 5, 2016 President Obama addressed the nation to announce national unemployment “dipped to 4.9 percent in January” noting “151,000” jobs were created during the month. Obama used this opportunity not only to quell public anxieties over rumors of a looming recession in 2016, but also scolded GOP presidential candidates for stoking the flames. However, given job rates tend to increase around the holiday season – hence the term...

Is U.S. Housing Investment Under Threat of an Impending Slowdown?

It's no secret 2016 started off in precarious fashion as several U.S. stock indices tumbled on news of China’s slowing economy, weakening international crude oil prices, and quietly transmitted rumors of a looming recession. Upon these revelations and other market performance indicators, the FOMC announced last week “to maintain the target range for the federal funds rate at ¼ to ½ percent” in accordance with “its objective of maximum employment...

Is the U.S. Economy Heading for Recession in 2016?

According to multiple news sources America is starting the New Year in precarious fashion as several credible economic analysts predict recession in 2016. Evidence of this anxiety is easily demonstrated by the recent and substantial drop in various stock market indices. As of today NASDAQ retracted to its approximate valuation as measured this time one year ago. Fears the global marketplace is facing an impeding hard contraction are growing. In...