Economists please answer

[Redlyne_mr2]

Im a regular viewer of CNN and once a day they post the trade deficit, what exactly is a trade deficit and how does it affect the economy. Todays current number was over 541 billion dollars. Thanks in advance

[Ben]

Well basically, The U.S. trade deficit is the result of a net inflow of capital to the United States from the rest of the world. Due to the fact the US has a realativly stable and somewhat free domestic market, it is the most desirable destination for foreign investment. This inflow of capital from other countries allows them to pay for imports over and above what we export.

If you look at Economic theory and past experiences it demonstrates that trade deficits are driven by levels of national investment and saving in the American economy, and not by what are commonly accused unfair trade barriers around the globe or by declining industrial competitiveness at home. America's Huge trade deficit is a representaion of economic strength, reflecting a strong net inflow of foreign investment drawn to America's notably dynamic economy.

[B17a]

Trade deficit is just the difference between exports and imports of a country. The US has a huge one which isn't necessarily as bad as $541B may seem. Just means they rely heavily on trading partners (ie. Canada).

[B17a]

Also could be an indication of how inefficient the US manufacturing economy is relative to the world. It's become cheaper to import most things than to produce domestically. Hence the argument from union leaders that free trade costs jobs blah blah blah.

[Ben]

Originally posted by B17a
Also could be an indication of how inefficient the US manufacturing economy is relative to the world. It's become cheaper to import most things than to produce domestically. Hence the argument from union leaders that free trade costs jobs blah blah blah.

Well exactly, there has been such a loss in competitiveness in the industries in the US that many people just say F-It and bring in from elsewhere

[G]

Originally posted by B17a
Trade deficit is just the difference between exports and imports of a country. The US has a huge one which isn't necessarily as bad as $541B may seem. Just means they rely heavily on trading partners (ie. Canada).

I think OIL makes up for most of the 541 billion.

[Weapon_R]

The trade deficit is the annual amount spent by U.S. individuals, companies, and government agencies on foreign-made products, minus the amount spent by foreign entities on U.S.-made products (considering the U.S. as the country we are looking at).

The reason that the US has a seemingly high trade deficit is because it has the world's largest economy. Trade deficit is not a bad thing at all.

[E36M3]

That isn't necessarily true. The reason that the United States has a large trade deficit is that American companies cannot produce goods in the U.S. that can compete with imported goods in this market.

The trade deficit is a very big deal for the United States, and is not directly related to it being a large economy. For example, in 1982, the U.S. had a then record trade deficit of around $30 billion / year, which at the time seemed catastrophic, but it has steadily increased as other nations have become more competitive in price and quality on goods that were traditionally produced domestically.

In order for the United States to continue to be a leading economy, the trade deficit must be addressed. It is impossible to sustain a large trade deficit indefinately.

Originally posted by Weapon_R
The trade deficit is the annual amount spent by U.S. individuals, companies, and government agencies on foreign-made products, minus the amount spent by foreign entities on U.S.-made products (considering the U.S. as the country we are looking at).

The reason that the US has a seemingly high trade deficit is because it has the world's largest economy. Trade deficit is not a bad thing at all.

[syeve]

Originally posted by Ben
If you look at Economic theory and past experiences it demonstrates that trade deficits are driven by levels of national investment and saving in the American economy, and not by what are commonly accused unfair trade barriers around the globe or by declining industrial competitiveness at home. America's Huge trade deficit is a representaion of economic strength, reflecting a strong net inflow of foreign investment drawn to America's notably dynamic economy.

WOW, I though I was the only geek here!!!

Ben, are you and economist too??

This statement best sums it up...the us is very dependent on outside sources...loss of competitiveness, alone with high dollar (not so much anymore but...) make this a reality.

[Ben]

meh, I follow a few things here and there.

[Redlyne_mr2]

What does America have to offer to foreign investors? I would say that Canadas ressources and exports are much more diverse and that on a per capita basis international trade is probably higher. Problem is too if their dollar continues to decline it will only become more and more expensive for the to buy from other countries. That country continues to grow and they are going to bleed all the other countries dry

[syeve]

thsi is one of the reasons why some economists are worried about a rising canadian dollar...it will simply render canada uncompetitive vs. us counterparts...although an extreme, Japan has similar qualities to that of the US...they depend on outside resources a great deal

[Ben]

Originally posted by syeve
thsi is one of the reasons why some economists are worried about a rising canadian dollar...it will simply render canada uncompetitive vs. us counterparts...although an extreme, Japan has similar qualities to that of the US...they depend on outside resources a great deal

Yes, Like Kobe Steak.