Reasons for the US Trade Deficit

A similar scenario in the Reagan years created a rise in protectionism, and some worry about history repeating itself. According to Harold B. Malmgren, a Washington, D.C. economist, as the trade deficit increases, the United States might embark on a vigorous program of unilateral actions and threats of action to force other governments to adjust.

Many analysts do not believe the trade deficit is due to lower wages, superior technology, and "unfair" trade practices. On the contrary, they think the trade deficit is due to certain macroeconomic fundamentals, such as the U.S. government budget deficit and the country's investment and savings patterns. Furthermore, they think that the trade deficit is not necessarily the best way to judge U.S. competitiveness. More important factors to consider would be price competitiveness and productivity.

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es had caused the pervasive decline in the early 1980s, they would have had to change uniformly and suddenly around 1981, which they did not. Of all the U.S. trading partners, Japan continues to be singled out for having the most unfair trading practices, but many think it is doubtful that such policies have been a major cause of U.S. trade deficits. This is because the Japanese market has become somewhat more open over the past decade. Even if existing foreign restriction on U.S. exports were completely removed, most estimates suggest the U.S. would reduce its trade deficit by only modest amounts. Many analysts believe that Japan's trade surplus with the United States is rooted in Japan's languishing economy and not in barriers to cutting-edge U.S. exports, such as commercial jet aircraft and pharmaceuticals. At the same time that recession-battered Japanese consumers and businesses are buying fewer imported goods from the United States, a resurgent U.S. economy is increasing its imports from Japan. Other economists believe that trade relations between the United States and Japan is too narrowly focused on the trade deficit. It ignores emerging markets that offer excellent export potential. According to this view,
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