In a recent article in the Wall Street Journal titled: “Trade Slump Spreads Pain Across Globe,” it was reported that the U.S. Trade Deficit has shrunk significantly to approximately $36 billion. This news should be perceived positively right? After all, it means that Americans are importing less foreign goods therefore reducing our dependency upon them and bringing the nation’s balance of payments closer to equilibrium right? Interpreting the data in this manner is misleading. The primary reason for a declining trade deficit can be attributed to the poor state of the economy. The current state of the Economy has discouraged everyone from the business sector to individual households from making additional purchases. All have scaled back and settled for only the immediate and necessary purchases. If times were good, economically speaking, most likely the deficit would be growing. The truth is that Americans are still highly dependent on foreign goods, especially oil which constitutes a large portion of that deficit. The United States will not see a truly significant decrease in the trade deficit until it provides alternative forms of energy to reduce its dependence on foreign oil. In the meantime, the decline in trade could actually be seen as harmful to all participating economies. The decrease in trade has been mostly among consumer goods that are more elastic to changes in market conditions. Assuming a basic economic theory to be true, that trade makes everyone better off, the recent decline in trade harms standards of living in all participating parties. Consumers in the United States have less consumer choices and their trading partners receive less income. Layoffs as well are becoming more frequent among parties. It is fast becoming a downward slope.
Trade Slump Spreads Pain Across Globe