|Daniel Tortis, Director of Digital Media|
The United States just reached a huge trade deficit of $679 billion last year which is also a 12 year high since the financial crisis in 2008. What is a trade deficit, you may be asking? A trade deficit is where a country imports more than it exports. This trade deficit was caused by numerous factors and can have detrimental economic effects on the U.S economy, which is what this article will aim to discuss.
One significant factor was the rising tensions between the world’s two largest economies; the United States and China have been involved in an ongoing trade war that was amplified during the years of the Trump Administration. Trump attempted to limit imports from China and boost demand for domestic businesses by placing tariffs on China. A tariff is a tax imposed by a government of a country or of a supranational union on imports or exports of goods. China followed suit by placing retaliatory tariffs on American goods. Economists can agree these trade wars have, on an aggregate level, hurt the economies of both countries and particularly the U.S.
The COVID-19 pandemic has also had a huge impact on this deficit. Covid has disrupted American supply chains and productions of goods throughout the year, causing a sharp decline in U.S GDP (gross domestic product) and exports. The U.S has also seen many of its exports such as tourism and education drastically drop with flight restrictions, and just an overall lack of demand for people to travel. Service exports as a whole dropped over 20 percent during the year. Tourism and education were exports that took a huge beating as a result of the pandemic with over 30 million Americans contracting the virus. Imports of goods have also fallen by 9.5 percent due to Covid and the lack of disposable income Americans currently have.
Although this is a very complicated and complex issue, trade deficits do have their downfalls. A trade deficit can cause an increase in the outsourcing of jobs to other countries. When a country imports more than it buys within the country it will allow for fewer jobs in certain facets of the economy. A huge reliance on imports also leaves a country vulnerable during times of economic downturns which the U.S.A is currently experiencing. The United States has maintained a trade deficit for many years and since 1976. For smaller countries, this could have much different and adverse economic consequences.
Joe Biden ran his campaign on easing tension with China which could result in fewer tariffs in the upcoming year. However, it will be tough to get support on a complete easing of tensions with China because of the human rights abuses over the Uyghur Muslims. U.S. vaccine distribution has already begun to curb the spread of Covid-19 with all Americans on pace to have access by the summer.
The trade deficit is something to keep an eye on but not the only indicator as to how the U.S economy is doing. With vaccines on the way, we can expect the U.S economy to continue to grow in the coming quarters.