Trade Issues | |
Trade Deficit Explained |
The U.S. trade deficit fell 17 percent in February. The White
House has taken credit for rising exports and "solving"
the U.S. trade gap with Japan. But some critics believe public
understanding and media reporting about trade matters is flawed
because it only focuses on the producer.
For producers, exports are good because they represent sales.
Imports are bad, because they represent competition. But consumers
look at things differently.
When imports exceed exports, the U.S. is said to have a trade
deficit. But this doesn't mean the U.S. is indebted to another
country. Individuals and firms pay for foreign goods with dollars
-- it's not debt. Nor is the U.S. dependent on foreigners. They
need our money as much as we need their goods, which are worth
nothing unless there is someone willing to buy them.
Moreover, when foreign companies get dollars, they can't do much
with them except buy American goods and services or invest here.
The dollars find their way back to the U.S. economy.
However, monthly trade data don't reflect this two-way flow.
Balance of payments figures from the Commerce Department do, however.
They include the current account and the capital account.
Balance of payments data explain why many believe that a current
account deficit entails debt. That's because foreigners use U.S.
dollars to buy debt in the form of government bonds. But that's
a good sign, not a bad one. It means that foreign investors think
the economy is growing, the dollar is sound and that trade is
free.
Source: Perspective, "Are Trade Deficits Bad?' Investor's
Business Daily, April 26, 1996.
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