U.S. trade deficit isn't as bad as many believe

For many years, we have been hearing that the Chinese invaded the U.S. market with cheap imports, thereby destroying local jobs and industries. Even worse, United States has trade deficits with many countries around the world. All those evil nations are taking advantage of America and this is time to stop them. But, how real is this? Statistics show that the deficit is smaller than many politicians declare.

Besides, many products that the U.S. imports come from American companies that have manufacturing centers in foreign countries. In the 80s it was common to hear that Japan would destroy the U.S. economy but that was just a myth. Today the U.S. economy is far better than the Japanese. We can also add that immigrants are key to control labor costs in United States and to remain competitive. A cheap dollar will help the local economy too.

Goods are just a part of the business

For a long time when we talked about foreign trade we discussed exports and imports related to goods. Times have changed, the services have grown, promising a stable future.

Many politicians complain that the Trade Deficit reached $750 billion in 2016 but this is just about goods. On goods and services, the real trade deficit was just $502 billion last year. US manufacturing has been hit by foreign competitors but remember that services are about 80% of the US economy. If some factories go bankrupt, the workers can be absorbed by the service economy. We can also add that the U.S. economy is almost $19 trillion, thus, the trade deficit would just be 2.6% of the economy.

Many imported goods are American

A lot of products that are sold in shopping centers and malls of United States come from American factories in foreign countries. Nike sport shoes come from US factories in Vietnam, many Chevrolet and Ford vehicles come from the US manufacturing centers in Mexico.

The real trade deficit is much smaller than the 2.6% of the economy. Manufacturing all the products in United States would be a big mistake. Imagine a top executive who decides to become a farmer to produce rice instead of buying this. It would be a loss for him because, as an executive, he could make much more. The U.S., therefore, must produce goods of advanced quality and high value. This might prove to be a challenge and the better deal would be to import low-tech products from countries that have cheap labor such as China, Vietnam or Bangladesh.