Trade Deficits Matter

Typically, the course of empire goes from trade surplus to trade deficit during the 200 period of hegemony that is a ‘Reset Period’. Even in ruin and deep fiscal deficit, the dying hegemon persists until the period ends and the newly inaugurated power is recognized. This is brought about by the true ruling power structure of the world. It surely must be obvious, after the most rigged and fake election of recent history, that the voters are not in control of anything. Nothing is linear. Everything is cyclical.

America Cannot Just Make Everything It Needs Anymore.

At the peak of empire, 100 years ago, America was able to not only make everything it needed, but was also able to make most everything that the ‘rest of the world’ needed to boot, while having the surplus resources to donate or open credit lines for all nations who wished to trade.

The U.S. trade deficit in goods and services was $616.8 billion in 2019. Imports were $3.1 trillion and exports were only $2.5 trillion.

In 2019, the U.S. trade deficit in goods alone was $866 billion. The United States exported $1.65 trillion in goods. The biggest categories were commercial aircraft, automobiles, and food. It imported $2.51 trillion. The largest categories were passenger cars, cell phones, and pharmaceutical preparations.

Key Takeaways

  • The United States runs a trade deficit with all its five major trading partners: China, Mexico, Japan, Germany, and Canada
  • America’s largest trade deficit is with China
  • The United States imports more goods than it exports because its trading partners can produce these at much better prices or quality

Why America Can’t Just Make Everything It Needs

The United States could make almost everything it needs. But some countries can make products just as well for a lower price. It makes more sense to pay less for these goods.

In some products, America has a comparative advantage. These are agricultural products and industrial supplies like organic chemicals. They also include capital goods like transistors, aircraft, motor vehicle parts, computers, and telecommunications equipment. 

The United States runs a deficit with countries which fit at least one of the following categories:

  1. They can produce things more cheaply than the United States can, such as consumer products or oil. That is changing with increased U.S. production of shale oil, but at a very high cost..
  2. They don’t need what America is good at making
  3. They trade a lot of everything with the United States, but America imports more than it exports

Top Five Trade Partners

Most U.S. trade partners have deficits that fall into the first two categories. The two largest are China and Japan. Some of the largest deficits are with countries in the third category. They are Canada, Mexico, and Germany.

The countries with which the United States has the largest trade deficits in goods are not always its most important trading partners. Some nations export a lot without importing much. But the top five trading partners also have the largest deficits.

  1. Mexico – $615 billion traded with a $102 billion deficit
  2. Canada – $612 billion traded with a $27 billion deficit
  3. China – $559 billion traded with a $346 billion deficit
  4. Japan – $218 billion traded with a $69 billion deficit
  5. Germany – $188 billion traded with a $67 billion deficit

The chart below shows the trade for the top five U.S. trading partners as of 2019. The first tab shows the volume of goods traded by each country. The second tab shows the deficits. Please note that the Census provides trade data by country for goods only, not services.

The Largest U.S. Deficit Is with China

More than 42.1% of the U.S. trade deficit in goods is with China. The $346 billion deficit with China was created by $452 billion in imports. The main U.S. imports from China in 2018 were electrical machinery, machinery, and furniture and bedding.

Many of these imports are actually made by American companies. They ship raw materials to be assembled in China for a lower cost. They are counted as imports even though they create income and profit for these U.S. companies. This practice results in many outsourced manufacturing jobs.

America only exported $107 billion in goods to China. The top three exports in 2018 were aircraft, machinery, and electrical machinery.

The United States Has a Deficit with Its NAFTA Partners

Canada, the United States, and Mexico are partners in the world’s largest trade agreement, the North American Free Trade Agreement

The second-largest U.S. trade deficit is with Mexico at $102 billion. Exports are $256 billion, mostly auto parts and petroleum products. Imports amount to $358 billion, with cars, trucks, and auto parts being the largest components.

The trade deficit with Canada was $27 billion in 2019. The United States exported $293 billion to Canada, more than it does to any other country. It imported $320 billion. The largest export by far is automobiles and parts. Other large categories include petroleum products and industrial machinery and equipment. The largest import is crude oil and gas from Canada’s abundant shale oil fields. 

Japan and Germany Are Third and Fourth

The third-largest trade deficit in 2019 was $69 billion with Japan.

The world’s fifth-largest economy needs the agricultural products, industrial supplies, aircraft, and pharmaceutical products that the United States makes.

Exports totaled $75 billion in 2019 Imports were higher, at $144 billion. Automobiles comprised much of the imports. Industrial supplies and equipment made up another large portion. Trade has improved since the 2011 earthquake, which slowed the economy and made auto parts difficult to manufacture for several months.

The fourth-largest U.S. trade deficit in 2019 was with Germany at $67 billion. The United States exported $60 billion. A large portion of this was comprised of automobiles, aircraft, and pharmaceuticals. It imported $127 billion in similar goods: automotive vehicles and parts, industrial machinery, and medicine.

So-called experts have assured us the trade deficits are not important.  This is only true if you have the deck stacked in your favor, a non-sustainable situation.  The Petro-dollar scheme is rapidly coming to an end.

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