Donald Trump and the US Trade Deficit
“They’re beating us so badly,” Trump says. “Every country we lose money with.”
Donald Trump, the Republican Presidential candidate, recently has expressed his concern about the United States’ $500 billion deficit in trade with other nations. Regardless of the accuracy of his numbers, the real estate tycoon put the term “trade deficit” in a way that portrays the U.S a loser and other countries as winners.
The U.S. has a considerable trade deficit with two countries: China and Mexico. Trump’s remarks are not very accurate because the existence of these deficits do not necessarily mean that the country is losing; in fact, the nation benefits in some ways. To discuss this matter more effectivly, it is important to understand the meaning of the term ‘trade deficit.'
Assume that Country A is a country that produces only one item – eggs. Further assume that there is another country manufacturing only steel. The steel-manufacturing country would need eggs and would, therefore, buy $2 million worth of eggs. People from the egg-producing nation would buy $4 million worth of steel. The difference in expenditure is referred to as the balance of trade; the egg-producing nation has a $2 million trade deficit.
Nonetheless, it does not make the egg-producing country a loser. Steel is vital to a country’s growth, and the egg-producing nation seems to have gotten a sufficient amount of it. Such expenditure should not be used to demonstrate waste, rather it is a show of how much more or less Country A buys from the Country B.
A current account deficit can also be inferred as a capital account surplus. Trade deficits can be deemed to be beneficial as it can mean that foreigners are buying U.S assets such as Treasury bills, stocks, and real estate. Deficits in trade are not a sign of unfair practices nor that America is “loosing”. On the contrary, it means that there are more inflows of capital into the country.
Los Angeles, CA