The US has had a trade deficit since 1975, so is the US trade deficit really such a bad thing?
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Not a bad thing as long as US can make sure the dollar stays the world reserve currency. They’re basically exchanging a piece of paper for goods other people produce.
Not really because it’s more than compensated for by direct foreign investment in the American economy.
That’s a tough question. The US dollar is a “reserve currency,” which means other countries want to save their money in US dollars, and there is a large demand for those dollars. This results in dollars leaving the country, and a trade deficit (generally considered a bad thing).
On the other hand, if the US is in debt to other countries, it can print more dollars. In this sense, being a reserve currency is good for the US.
This is called the [Triffin dilemma](https://en.wikipedia.org/wiki/Triffin_dilemma) and is sort of a “suffering from success” issue for the US. The US is constantly dealing with money leaving the country (capital outflows), however that money gives the US tremendous influence abroad and makes it very easy to pay down foreign debt.
You may also be interested in [this video](https://www.youtube.com/watch?v=y9HoPF0_a6A) on the weaponization of the US dollar, which is possible due to its reserve currency status.
No. When u have a deficit it is not like u don’t get anything out of it. U get stuff like cars and food etc.
Also America is an service based country. U provide services like banking, software, support, logistics experience etc. That is not counted as physical trade because u aren’t trading something physical.
Ultimately having a deficit is not a big deal if the country handles it correctly. It can also be a disaster if you are a export surplus country like venezuela and when the price of oil drops. Or u suffer from Dutch disease.
Ultimately sound fiscal policy is far more important then if u run a deficit or not
Not a bad thing as long as US can make sure the dollar stays the world reserve currency. They’re basically exchanging a piece of paper for goods other people produce.
No. When u have a deficit it is not like u don’t get anything out of it. U get stuff like cars and food etc.
Also America is an service based country. U provide services like banking, software, support, logistics experience etc. That is not counted as physical trade because u aren’t trading something physical.
Ultimately having a deficit is not a big deal if the country handles it correctly. It can also be a disaster if you are a export surplus country like venezuela and when the price of oil drops. Or u suffer from Dutch disease.
Ultimately sound fiscal policy is far more important then if u run a deficit or not
This isn’t really a ELI5 answer, but…
An important point a lot of replies are missing is that it can be very difficult to measure some of the most exported products coming from the US. Certain things like services are difficult to measure in the figures typically used by economists. This is the reason every year the worldwide import value is greater than the worldwide export value in reports from organizations like the World Trade Organization. If their data was perfect those amounts should always be equal, unless we were importing products from space aliens.
While the US has a huge trade deficit for physical goods like manufactured products, minerals, etc it’s the largest exporter in the world of less tangible products like engineering, software, product design, ideas, etc. The latter is difficult to measure. For example an iPhone made in China and sold in Europe isn’t an export of the US, but still ultimately contributes to the profits of a US company and thus the US economy because Apple designed iPhone. This isn’t a perfect example but helps convey the idea of problem economists face when measuring US exports. This helps explain why the total value of exports for an economy like the US that focuses primarily on “service” products can be difficult for economists to accurately measure.
This is not to say the US doesn’t have a trade deficit, but the trade deficit numbers used don’t paint the full picture and are very likely reported as larger than they are in reality.
So if you go back to the days of mercantilism, then yes it would be bad.
However we’ve moved past those days. The economy today is much more complex than exports must exceed imports.
At the end of the day, yes, more dollars are flowing out of the country than euros or yen is coming in. But if what we’re getting for those dollars is more valuable than the money then ultimately it’s still a benefit to us.
Computer processors are a great example. We don’t produce any here. Maybe in an R&D capacity. But certainly not on an industrial level. It all happens abroad. Mostly in Taiwan (which is a huge issue as tensions with China increase, as a war in Taiwan would mean no new computers in America). We import way more from Taiwan than we export there. But could you imagine not having computers? The access to computers makes every other industry so much more efficient. Meaning we are able to offset that loss in trade to our own internal increased productivity.
Ultimately money is just a measure of value. But if you’re able to trade money to increase your country’s value, you’re effectively making more money.
This isn’t really a ELI5 answer, but…
An important point a lot of replies are missing is that it can be very difficult to measure some of the most exported products coming from the US. Certain things like services are difficult to measure in the figures typically used by economists. This is the reason every year the worldwide import value is greater than the worldwide export value in reports from organizations like the World Trade Organization. If their data was perfect those amounts should always be equal, unless we were importing products from space aliens.
While the US has a huge trade deficit for physical goods like manufactured products, minerals, etc it’s the largest exporter in the world of less tangible products like engineering, software, product design, ideas, etc. The latter is difficult to measure. For example an iPhone made in China and sold in Europe isn’t an export of the US, but still ultimately contributes to the profits of a US company and thus the US economy because Apple designed iPhone. This isn’t a perfect example but helps convey the idea of problem economists face when measuring US exports. This helps explain why the total value of exports for an economy like the US that focuses primarily on “service” products can be difficult for economists to accurately measure.
This is not to say the US doesn’t have a trade deficit, but the trade deficit numbers used don’t paint the full picture and are very likely reported as larger than they are in reality.
So if you go back to the days of mercantilism, then yes it would be bad.
However we’ve moved past those days. The economy today is much more complex than exports must exceed imports.
At the end of the day, yes, more dollars are flowing out of the country than euros or yen is coming in. But if what we’re getting for those dollars is more valuable than the money then ultimately it’s still a benefit to us.
Computer processors are a great example. We don’t produce any here. Maybe in an R&D capacity. But certainly not on an industrial level. It all happens abroad. Mostly in Taiwan (which is a huge issue as tensions with China increase, as a war in Taiwan would mean no new computers in America). We import way more from Taiwan than we export there. But could you imagine not having computers? The access to computers makes every other industry so much more efficient. Meaning we are able to offset that loss in trade to our own internal increased productivity.
Ultimately money is just a measure of value. But if you’re able to trade money to increase your country’s value, you’re effectively making more money.
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