Published on: November 21, 2024 / Update from: November 21, 2024 - Author: Konrad Wolfenstein
The changing development of the US trade balance (2013-2023) – Image: Xpert.Digital
From Surplus to Deficit: The Dramatic Turnaround in the U.S. Trade Balance
The US trade balance: A decade-long change and its economic significance
The United States trade balance has changed significantly over the decades and has become a key indicator of the country's economic development. While the USA still had trade surpluses in the middle of the 20th century, the picture has changed fundamentally since the 1970s. Today, the trade balance is characterized by an ever-growing deficit, which has profound effects on the economy and the global position of the United States. The development of the trade balance is described in detail below, supplemented by an analysis of the causes and consequences.
Historical development of the trade balance
1950s and 1960s: The Era of Surpluses
In the postwar decades, the United States was an economic superpower with a strong industrial sector. Exports significantly exceeded imports, leading to trade surpluses. This period was characterized by global demand for American goods, including machinery, vehicles and consumer goods. At the same time, competition from other countries, especially from Europe and Asia, was still limited due to the reconstruction after the Second World War.
1970s: The beginning of the deficits
In the 1970s the trade balance turned negative. This was primarily due to two key factors:
1. Rising oil imports
The oil crises of 1973 and 1979 led to a sharp increase in energy prices. The USA, as a large energy consumer, had to import ever larger quantities of oil.
2. Loss of competitiveness
Countries like Japan and Germany gained economic strength and were able to offer high quality products at cheaper prices. This led to American products being less in demand on the world market.
1990s: The growing deficit
During the 1990s, the trade deficit continued to increase, reaching an average of about $185 billion per year. Globalization and the relocation of production to countries with lower labor costs contributed significantly to this. Particularly notable was the increasing trade with Asian countries such as China, which became an important exporter of consumer goods.
2000s: record deficits
The 2000s marked a peak in the trade deficit. With an average annual deficit of around $675 billion, the USA reached new record levels. China's accession to the World Trade Organization (WTO) in 2001 significantly increased trade between the two countries, with imports from China far exceeding exports. In addition, there were increasing imports of electronics, vehicles and other consumer goods.
Development of the last decade (2013–2023)
Over the past decade, the trade deficit has continued to worsen, reflecting several economic developments:
2013–2016
The deficit remained relatively stable between -$450 and -600 billion per year. During this time, the global economy slowly recovered from the financial crisis of 2008/2009.
2017–2018
A significant increase in the deficit was recorded, which reached -$678 billion in 2018. This increase was mainly due to higher imports, particularly of consumer goods and raw materials.
2020
During the COVID-19 pandemic, there was a short-term reduction in the deficit to -$626 billion. International trade fell due to lockdowns and disruptions in supply chains.
2021–2023
During these years, the deficit reached new highs, especially in 2023 at -$1.15 trillion. The reasons for this were increasing demand for imported consumer goods and weaker export demand due to global economic uncertainties.
Causes of the growing trade deficit
The persistently high US trade deficit can be attributed to a combination of structural and economic factors:
1. High import demand
American consumers often prefer imported goods such as electronics, clothing and vehicles. These products are often cheaper than comparable domestic alternatives.
2. Dependence on imports of raw materials
Despite advances in energy independence through fracking, the United States continues to import large amounts of oil and other raw materials.
3. Competitiveness of American products
U.S. products are often more expensive than their international counterparts, limiting their appeal in the global market.
4. Trading partners like China
A significant portion of the deficit comes from trade with China. For example, in 2022, the bilateral deficit was around $422 billion.
5. Strong US dollar
The value of the US dollar is often high compared to other currencies, making imports cheaper and exports more expensive.
Consequences of the trade deficit
The growing deficit has far-reaching implications for the United States economy:
Increasing foreign debt
To finance the deficit, the United States must borrow capital from abroad, which leads to rising debt.
Loss of jobs
The relocation of production facilities abroad has led to job losses in many sectors, particularly in manufacturing.
Dependence on imports
High import dependency makes the US vulnerable to global supply chain problems and geopolitical tensions.
Measures to reduce the deficit
To reduce the trade deficit, various strategies could be pursued:
1. Promoting exports
Investments in research and development and innovative technologies could help increase the competitiveness of American products.
2. Trade Agreements
Barriers to exports could be reduced through bilateral or multilateral agreements.
3. Strengthening domestic production
Tax incentives or subsidies could encourage companies to establish or relocate manufacturing facilities in the United States.
4. Promoting renewable energies
Greater independence from energy imports could reduce the deficit in the long term.
Trade deficit remains a key economic factor for the USA
The evolution of the United States trade balance reflects profound changes in the global economy. While it was characterized by surpluses in the post-war decades, high deficits have dominated the picture since the 1970s. These are an expression of structural challenges such as strong import dependency and limited international competitiveness of American products.
The trade deficit remains a key economic factor for the USA with far-reaching consequences for jobs, debt and geopolitical dependencies. In the long term, it will be crucial to implement measures to promote exports and strengthen domestic production in order to achieve a more sustainable balance in international trade.
In his trade policy throughout his time in office and in his election campaigns, Donald Trump has always pursued the goal of reducing the chronic trade deficit in the USA. This deficit arises because the United States has been importing more goods than it has exported for decades. In 2019, the US trade deficit with China alone was $345 billion, making China the main target of Trump's actions. Countries like Germany and the EU have also been targeted because of their trade surpluses.
Reasons and measures for Trump's focus on the trade balance
1. “America First” strategy
Trump views international trade as a zero-sum game in which one country can only win at the expense of another. In this logic, he sees the USA's long-standing trade deficits as a sign of weakness and unfair trade practices in partner countries. His “America First” strategy aims to bring jobs and production facilities back to the USA and strengthen domestic industry.
2. Protectionism as a means to strengthen the US economy
Trump relies on protectionist measures such as punitive tariffs to make foreign competition more difficult and to favor US companies. High tariffs on imports - especially from China (up to 60%) and Europe (10-20%) - are intended to promote domestic production and reduce dependence on foreign goods.
3. Criticism of multilateral trade agreements
Trump prefers bilateral negotiations in which he believes the US can secure better terms because of its economic strength. He sees multilateral agreements such as NAFTA or the WTO as disadvantageous for the USA and has repeatedly questioned or renegotiated them.
4. Political rhetoric and voter loyalty
Reducing the trade deficit is also used as a political tool to mobilize Trump's base. The prospect of industrial jobs and a return to economic conditions like those of the 1950s to 1980s is a central part of his “Make America Great Again” campaign.
Why tariffs are threatening
Trump is likely to reimpose or increase tariffs as he sees them as an effective means of achieving the following goals
Reduction of the trade deficit
Higher import tariffs are intended to make foreign goods more expensive, which should reduce imports and at the same time make domestic products more competitive.
Increase bargaining power
Punitive tariffs also serve as a means of pressure in negotiations with trading partners such as China or the EU in order to force concessions and create supposedly “fair” trading conditions.
Industrial policy
Tariffs on steel, aluminum or technology products are intended to protect strategic industries that Trump considers essential to national security.
Criticism and risks
However, economic experts warn of significant negative consequences:
Inflation and higher consumer prices
Tariffs make imported goods more expensive, which in turn drives inflation. This particularly puts a strain on low-income households.
Economic damage caused by retaliation
Trading partners such as the EU or China could respond with their own tariffs, which would affect global trade and slow economic growth.
Limited effectiveness in reducing the deficit
The causes of the US trade deficit lie deeper - for example in the high consumer behavior of Americans and the attractiveness of the US capital market for foreign investors. Tariffs alone cannot solve these structural factors.
Nevertheless, Trump is likely to continue relying on tariffs to advance his protectionist agenda. However, the strategy is controversial because, although it could bring political success in the short term, it is likely to harm both the USA and its trading partners economically in the long term.
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