Investing

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.”

Other Articles by Edmund Burden