America Has A Large Trade Deficit, But Economists Aren't Too Concerned About It President Trump says the trade deficit that the U.S. runs with other nations must be slashed for the well-being of the country. But analysts say the deficit provides other benefits to the economy.
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America Has A Large Trade Deficit, But Economists Aren't Too Concerned About It

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America Has A Large Trade Deficit, But Economists Aren't Too Concerned About It

America Has A Large Trade Deficit, But Economists Aren't Too Concerned About It

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Last week, President Trump proposed new tariffs on products imported from China. The president says America is being taken advantage of by its trading partners. He says jobs are being lost because the U.S. buys more from other countries than it sells. It's a view shared by a lot of people but not by most mainstream economists. NPR's Jim Zarroli explains, starting from the shelves of a Target.

JIM ZARROLI, BYLINE: So if you walk into any big-box store or department store like this one in New York City, you can quickly see that virtually everything that's for sale is made in another country - luggage and calculators and ballpoint pens and tube socks. And President Trump says it's a big problem.

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PRESIDENT DONALD TRUMP: We have almost an $800 billion a year trade deficit with other nations - unacceptable. We are going to start whittling that down and as fast as possible.

ZARROLI: A trade deficit is the difference between what Americans buy from other countries and what they sell in those places. The notion that a trade deficit is necessarily a bad thing is one many economists of different political persuasions reject. Veronique de Rugy of the Mercatus Center at George Mason University says when the U.S. buys things from overseas, it has to pay for them in dollars, which means countries such China and Japan accumulate vast piles of dollars. They have to exchange them for something, and she says what they do is use them to buy U.S. assets, such as government bonds and stock.

VERONIQUE DE RUGY: Every dollar that we send in exchange for goods will come back to us from foreigners in the form of investment. In a sense, if you think about it, it's a win-win for the U.S.

ZARROLI: Americans get lots of consumer goods, she says, and the money comes back to the U.S. Former Fed governor Alan Blinder says it works because so many people want to invest in the United States.

ALAN BLINDER: As long as foreign investors are not only willing but happy, even eager, to do that, to buy that stuff, there's no problem running a trade deficit.

ZARROLI: Blinder says it's certainly possible that deficits become harmful at some point.

BLINDER: When it can be a problem is when the rest of the world decides you're not such a good credit risk.

ZARROLI: If for some reason investors began to see U.S. assets as less attractive, they'd buy a lot less. The dollar would fall. The government would have to pay more to borrow. And that hasn't happened, but Celeste Drake of the AFL-CIO says the trade deficit is a sign that something's seriously out of whack with the economy. Drake says economists have been making promises about trade for years. They've said foreign markets would open up and U.S. companies would begin exporting more. Instead, the trade deficit has only gotten bigger.

CELESTE DRAKE: The U.S. is running the largest and most sustained trade deficit ever recorded in history.

ZARROLI: Meanwhile, as Americans buy more products overseas, it's eliminated jobs in the U.S., and wages for many U.S. workers have been stagnant or worse. Drake says, all this suggests that the country needs to pay more attention to the trade deficit.

DRAKE: Certainly, it is a measurement that something's really quite out of balance with the American economy, and we should stop ignoring it.

ZARROLI: President Trump agrees, and he's made clear he's willing to risk a trade war to change the system. But in the process, he'll have to contend with a consumer culture that loves to buy things and enjoys the benefits that trade provides. Jim Zarroli, NPR News, New York.

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