Global Competition

In an increasingly international world, the United States benefits from actively participating in trade with other countries. Even though the United States, because of its size, is relatively less dependent upon imports and exports than other (smaller) countries, it needs to remain globally competitive in order to maintain a high standard of living.

Exports, Imports and the Trade Deficit

Exports of goods and services in the United States amounted to $2.23 trillion in 2015. This is approximately 13% of nominal Gross Domestic Product. The United States’ strongest export items include capital goods (includes computers and telecommunications equipment), industrial supplies, food, high technology (including military) products, computer software, entertainment products (movies, music), and services (banking, consulting, insurance). The United States’ main 3 export partners are Canada, Mexico, and China.

Imports of goods and services in 2015 amounted to $2,76 billion or approximately 16% of nominal GDP. A significant component is manufactured products, such as industrial machinery and equipment (including oil and petroleum products), televisions, smart phones, computers, and cars. This is in contrast to several decades ago, when over half of all imports were raw materials. The service and information economy has taken on a more dominant role in the United States. Many services can only be provided domestically, whereas manufacturing can be done in other countries. Manufacturing industries have been on the decline over the past several decades in the United States due to higher labor costs, more expensive benefits (i.e. health insurance) costs, high corporate tax rates, and increased regulations. The current administration is attempting to reverse this.

Imports of merchandise goods have exceeded exports of merchandise goods each year since the early 1980s. This means that the United States has run a trade deficit since that time. In 2015, the goods (merchandise) deficit was $531 billion. This is not necessarily a bad thing though. Trade deficits can be a sign of a country’s economic strength. Households in strong economies have more purchasing power than households in poorer economies. The United States economy is usually stronger than most economies and typically has one of the lower unemployment rates in the world. This means that we have more purchasing power and that we can buy more from other countries than they can buy from us. Consider two productive people, one with earnings of $10,000 and the other with earnings of $1,000,000. The higher-income person will likely buy more from the lower-income person than the other way around.

A trade deficit does not necessarily mean that a country is in debt. By definition, it only means that the merchandise parts of the balance of payments is negative. The merchandise component of the balance of payments is only one of various other accounts. The services account, for example, has been positive by several hundreds of billions of dollars the past several years. For more information about the Balance of Payments, see the Principles of Macroeconomics part of our text, Unit 10, section 3.

A trade deficit can be a sign of a healthy economy, but it can be a sign of a struggling economy as well. A poor country with no productive capacities and an inability to export anything is forced to import food and other essentials. Therefore, it experiences a trade deficit out of necessity and not out of choice.

For more information about international trade statistics, please visit: www.census.gov (click on “Foreign Trade”. then “Statistics”).