Rising trade deficit for goods isn’t a cause for worry, experts say

Preliminary numbers out today from the U.S. Census Bureau show that the country’s trade deficit in goods grew by over 4% in November, up to nearly $103 billion.

This isn’t new. The United States has consistently imported more goods than it exports since the mid-1970s. Narrowing the gap between imports and exports has long been a goal of incoming President Donald Trump, though the deficit grew during his first term. 

So before Trump takes office again, let’s look at why we have a trade deficit with the rest of the world and what that tells us about our economy.

When we have a trade deficit in goods with other countries, that means just one thing, said Sharyn O’Halloran, a political economy professor at Columbia University: “We are buying more things from abroad than we are selling.”

And while it’s easy to think that means we’re somehow losing to other countries, it’s actually more complicated. 

For one, we export a lot of services, like software, accounting and education, which changes our trade balance. 

Also, said Rachel Brewster, a law professor at Duke University, what should be taken into account is “how much investment you’re getting into the country versus how many goods and services you’re selling abroad,” said.

And on that level, we’re doing well, Brewster said. Foreign countries and businesses want to invest in our stock market and in our government debt.

And that is going to drive up the value of the dollar, and it’s going to lead to a trade deficit. Because the stronger the dollar, the more expensive it is for other countries to buy our exports, but the cheaper it is for us to buy theirs.

And we’ve been consuming a lot, which helps drive the U.S. economy. 

Mary Lovely, a senior fellow at the Peterson Institute for International Economics — a Marketplace underwriter — said our trade deficit reflects that.

“We’re consuming more than we’re earning, which means we are borrowing more,” she said.

Borrowing is OK, she said, if it’s going toward investments that eventually help us grow the economy. 

“And it pays off in the future. We have a higher income, we can easily meet those payments,” she said.

But if we’re just spending on stuff that doesn’t eventually help us produce more, she said, that’s where things can get messy.