Title: The U.S. Trade Deficit: How Much Does It Matter? | Council on Foreign Relations
Headings: The U.S. Trade Deficit: How Much Does It Matter?
The U.S. Trade Deficit: How Much Does It Matter?
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Introduction
What is a trade deficit?
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What causes it?
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A summary of global news developments with CFR analysis delivered to your inbox each morning. Most weekdays.
How has the U.S. trade deficit changed over recent decades?
Why are some observers concerned about the trade deficit?
What are the arguments against focusing on the deficit?
What are the options to reduce the deficit?
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Content: The deficit with China expanded dramatically beginning in the early 2000s from an average of $34 billion in the 1990s. Some economists refer to this as the “ China Shock ” [PDF] and attribute it to the unexpectedly rapid growth of China’s export manufacturing sector in the late 1990s. This happened as Beijing undertook deep economic reforms and implemented policies to subsidize production, accelerate industrialization, and boost exports. In the process China earned the moniker “the world’s factory.” Economists also note the acceleration of Chinese export growth after the country’s entry into the World Trade Organization (WTO) in 2001. These factors meant a rising flow of Chinese electronics, apparel, and other goods into the United States, which helps to explain China’s contribution to the deficit, as well as the deficit’s concentration in the manufacturing sector. U.S. manufacturing employment dropped from 26 percent of the workforce in 1970 to 8.5 percent in 2016, a fall that Hufbauer and others say was accelerated by Chinese competition. However, most economists attribute the bulk of the reduction to automation, productivity increases, and demand shifts from goods to services. Why are some observers concerned about the trade deficit? President Trump, who campaigned on ending trade imbalances, argues that “trade deficits hurt the economy very badly.”