2 minutes reading time (306 words)

Trade Deficit Narrows a Bit

Chris Kuehl, Ph.D.

Contrary to popular belief, there is not really a "good" or "bad" position as far as a trade deficit. To have a deficit in terms of trade means that there are more imports coming into the country than there are exports out of the country.

This means that companies selling and distributing these imports make money; it means that consumers are getting good deals on the things they purchase; and it means that a country as a whole is getting access to goods and services it would not otherwise have.

On the other hand, imports may be replacing domestically produced goods and that hurts companies competing with the imports. Exporting is generally a good thing as it means that money is being made from overseas buyers. There are two ways a nation can reduce its trade deficit: buy less or sell more. The preferred option is selling more.

The latest U.S. trade numbers have improved with the deficit narrowing from $67.04 billion in August to $63.86 billion in September. Though this is an improvement, the deficit a year ago was only $47.84 billion. The reason for the improvement this month was an increase in exports by 2.6%, while imports only gained by 0.5%.

The surge in imports earlier this year stemmed from the impact of the stimulus and the increase in goods purchasing by consumers as opposed to the service dominated spending that prevailed prior to the shutdown. The increase in exports has been due to both higher levels of machinery sales and higher sales of food. The U.S. export sector is dominated by these two categories; agricultural output and high-tech machinery. The import sector is dominated by consumer goods. The expectation is that exports will continue to grow and imports will shrink a bit, provided the economy does not resume another lockdown.

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Friday, 04 December 2020