United States Trade Deficit

Two historical causes:  

 

1)  Strong need for crude oil and the inability to produce it locally. Oil is necessary in many areas of our daily lives such as fuel for cars, heating, electricity generation, and the production of plastics. The demand for oil is so high that the cost continues to rise.

 

2)  One sided trade relationships with our trading partners. The U.S. has consistently been more open to free trade than other countries. We have eliminated high tariffs, quotas, and other barriers and restrictions for goods to enter our country. However, many of our trading partners still use these protectionists measures in one form or another to keep our products out.

 

Two recent causes:

 

1)  Manufacturing is being outsourced to China and Mexico because labor is so cheap. The workers in these countries are often exploited and the factories they work in pose serious harm to the environment. The Economic Policy Institute estimates that this has cost America 2.8 million jobs. Yet the practice continues because the consumer ultimately enjoy goods at a low price.

 

2) China's currency manipulation. The value of a currency dictates whether goods in a particular country are expensive or cheap. The government of China has consistently interfered with foreign currency exchange rates to keep the value of the yuan low. This means that a U.S. dollar can buy a large number of yuans, making the prices of goods from China extremely attractive. The devaluation of the yuan has caused our trade deficit to spiral out of control.