What the Trade Deficit Means to the Average American
Lately it’s been all over the news that the US is negotiating with China to lower the American trade deficit. As the countries continue to discuss and negotiate terms, it’s natural to wonder if the trade deficit is even something a regular citizen should worry about.
What is the trade deficit?
According to Quartz, the trade deficit indicates how much more the US consumes than it exports on a national level. The reason why American leaders are talking with China is to negotiate a lower deficit by allowing the US to export more goods to China and to help us enforce the intellectual property laws that apply to our technology.
Currently, the trade deficit stands at “an all-time high of $208.5 billion,” as reported by Reuters. The concern is that the deficit has and will continue to depress economic growth, although many experts believe that the deficit has little to no effect on the country’s growth.
Can the deficit be fixed?
Right now, the policies in place to fix the trade deficit are trade tariffs and negotiations with China. Unfortunately, the tariffs will likely do little for the deficit, since China will raise tariffs of their own, cancelling out what revenue the US might earn from them.
Wall Street Journal’s Jason Furman suggested that the best way to fix the deficit would be to pursue “trade enforcement and liberalization in a multilateral fashion,” which would help support higher wages and benefit customers.
Overall, many argue that the changes that need to happen should take place internally, not in a diplomatic setting.
Why should we care about the trade deficit?
At first glance, it may seem like the deficit should be all bad. However, there are a lot of factors connected to the trade deficit that are both beneficial and detrimental to the average citizen.
However, Quartz found that the trade deficit is linked to the US currency’s standing as a global reserve currency, which creates a higher demand for debt. This global reserve status has its advantages. While benefitting from low interest rates, “Americans can invest abroad in longer-term, higher-yielding assets.”
The downside of the trade deficit is that it can lead to economic bubbles, like the housing crisis that sparked the 2008 recession. That led to disastrous consequences for the everyday American citizen, and it has taken years to recover. Naturally, politicians and businesspeople alike want to avoid that kind of downturn in the future.
Safeguarding Against the Future
While there’s little that the average person or business can do to resolve the trade deficit (besides vote), hiring a finance consultant can help you assess your exposure to the trade deficit. Any company doing business off-shore should go through this evaluation.