A trade deficit occurs when a nation is importing more than it is exporting. The US trade deficit has been a great concern to Congress. The deficits in the country have been facilitated by an imbalance in the country's investments and savings. The country's deficit has been rising steadily for the last two decades and has been rooted in foreign and local macro-economic conditions. The US trade deficit resulted from the long failing trend of local savings, resulting in increased unemployment and stagnated standards of living.
The long falling trend in the country’s local savings has contributed to the country’s trade deficit. The decline in the country's savings has led to the reduction of its local investments leading to a rising interest rate than they would otherwise have been (Ghosh & Ramakrishnan, 2020) . High-interest rates have led to financial capital inflows from foreign countries . Converting the US dollar into other currencies led to a rise in its demand in the market, thereby pressuring its value relative to other currencies (Congressional Research Service, 2020). Upon pressuring the dollar, the US imports products had a lower cost and export at higher prices to foreign countries. The rise of imports and the fall in exports made the country a chronic deficit in the economy.
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The US deficit peaked around the 1980s when the country's economy was in a boom; reducing in the 1990s led to its economic deficit. An increase in the economic boom increases a country’s investments more than its saving, leading to slippage emergence. When a country experiences an economic expansion, it reduces its savings due to its rise in its investments, causing a deficit. Upon recession, investments decline more rapidly than the country’s savings declining the deficit. The US has experienced a decline in its savings as the Americans save less than other people, resulting in higher consumption. The increased consumption of imported goods and less export created a trade deficit in the US (Amadeo & Boyle, 2021) . The US also lacked industrial competition due to the stellar operation of the US economy. The country's economy has been expanding more rapidly than that of the foreigners as the US has been buying more goods from foreign countries more than they export.
The trade deficit led to unemployment in the US as the country spent more than its domestic output by focusing more on imported products. Importation made the US have more products; thus, most industries were inactive, which made many people lose their jobs. The trade deficit led to the elimination of manufacturing companies in the US. Consequently, there was the elimination of many jobs in the manufacturing industries between 1979-94. As a result, the country’s export reduced due to a decline in human power in production. Trade deficit led to the reduction of exports to Asian countries such as China (Reinbold & Wen, 2018) . Additionally, the increase in the exchange rate level led to a rise in the incentive of the allocated resources away from production on local goods and importation of products.
The trade deficit in the country resulted in depressive impacts on the country's wages. The macro-economic policies like the government expenditure and rates of interests had a greater impact on employment and production standards than the trade does. Trade affected the employment composition since the fired employees in the manufacturing industry found other jobs in the service industries where the paid wages as much less. In the last two decades, American’s living standards have stagnated, increasing income inequality in the country. The trade deficit has also eroded the trade competition between the US trade and other countries. When the country’s trade and dollar value deteriorated, numerous industries and firms, such as semiconductors and steel industries, were ruined.
In conclusion, the trade deficit in the US has led to massive effects on the US population. The US deficit has been led by high imports than exports, an increase in the dollar's strength, long-term trade slippage. The deficit has led to the elimination of high-wages for the workers. They have also led to downward pressure on the employees by reducing prices and reducing jobs. It has also undermined the growth of the production and income stagnation plaguing the country’s economy. The US should initiate plans and guidelines to help them address the trade issues.
References
Amadeo, K., & Boyle, M. J. (2021). Trade policy | What Is the Current U.S. Trade Deficit? The Balance . https://www.thebalance.com/u-s-trade-deficit-causes-effects-trade-partners-3306276
Ghosh, A., & Ramakrishnan, U. (2020, February 2). Current Account Deficits: Is There a Problem? International Monetary Funds . https://www.imf.org/external/pubs/ft/fandd/basics/current.htm
Reinbold, B., & Wen, Y. (2018). Understanding the Roots of the US Trade Deficit . https://www.stlouisfed.org/publications/regional-economist/third-quarter-2018/understanding-roots-trade-deficit
Service, C. R. (2020). The US Trade Deficit: An Overview. https://crsreports.congress.gov/
