{"id":10171,"date":"2022-02-17T08:34:25","date_gmt":"2022-02-17T08:34:25","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=10171"},"modified":"2022-02-26T13:05:36","modified_gmt":"2022-02-26T13:05:36","slug":"what-impact-will-record-trade-deficit-have-on-the-economy","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/what-impact-will-record-trade-deficit-have-on-the-economy\/","title":{"rendered":"What Impact Will Record Trade Deficit Have on the Economy?"},"content":{"rendered":"\n

Matthew D. from Kingsville, TX asks: <\/em>Hello Mitch, I\u2019m\nwriting to hear your thoughts on the U.S.\u2019s record trade deficit. It seems like\nthe country\/economy is going in the opposite direction as we should be.\nWouldn\u2019t it be better if we were selling more than we\u2019re buying? Do you think\nthis could affect the markets this year?<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thank you for your email. For readers who may not know the\ncontext of your question, allow me to explain. <\/p>\n\n\n\n

Last week, the U.S. Commerce Department reported that the U.S.\ntrade deficit increased a stout 27% last year to an all-time high of $859.1\nbillion. A trade deficit happens when a country imports more goods and services\nthan they export, which in the U.S.\u2019s case is approaching $1 trillion.1<\/sup><\/p>\n\n\n\n

Breaking down the trade deficit number indeed underscores\nthe dependence of U.S. consumer and businesses on imports from other countries,\nand in particular China. American consumers spent heavily last year on\ncomputers, furniture, and other goods while spending less on services like\ntravel, restaurants, and hotels. Businesses also had strong demand for capital\ngoods and spending on food and energy rose based on demand and higher prices. <\/p>\n\n\n\n

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Overall, the 2021 trade deficit blew past the previous record of $763.53 set in 2006, and the trade deficit between the U.S. and China grew 14.5% to $355.3 billion. The trade deficit with China, while large, did not set a record, however \u2013 that was for $418.2 billion in 2018.<\/p>\n\n\n\n

I realize that trade deficits seem bad on the surface \u2013 a\ncountry is buying more than it is selling. But what matters more than deficits\nis whether total trade <\/em>is increasing. In other words, the U.S. may be\nbuying more than it is selling, but if the consumers and businesses are buying\nmore and <\/em>selling more than that points to higher overall economic\nactivity \u2013 a positive. <\/p>\n\n\n\n

Indeed, both exports and imports are on the rise, which\nunderscores the strength of the U.S. economy. If exports were plummeting while\nimports were rising rapidly \u2013 and total trade fell \u2013 that may be a cause for\nconcern. But that\u2019s not what is happening now. <\/p>\n\n\n\n

I also think we could see some softening in the deficit\nlater this year, as U.S. consumers continue to shift purchases from goods to\nservices. In the 2021 trade figures, service exports were still at fairly\ndepressed levels, as the pandemic\u2019s twists and turns ultimately led to fewer\nvacations, travel, tourist visits, etc. It\u2019s worth noting here too that the\nU.S. still ran a services surplus even with these lower levels of activity, of\n$231.5 billion. That\u2019s down approximately 5% from the previous year, a trend I\ncould see reversing in 2022. <\/p>\n\n\n\n

The bottom line is that it is important to think less about\ndeficits and surpluses and more about total trade<\/em>. Doing so will give\nyou a better read on the U.S.\u2019s and global economy\u2019s health.<\/p>\n\n\n\n

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