America's Trade Deficit Is Widening Again

While Americans go about their daily life not enough attention is being paid to the trade deficit. It is and has been widening, again. The U.S. international trade deficit widened 0.8% in May to $75.1 billion. This is the largest deficit since October 2022. Over all, the trade deficit is up $14.4 billion or 4.2% from the same period last year. These numbers, and those for the last several years highlight that for all the ruckus it created, the trade war failed to bring down the trade deficit.

The world may have already hit peak globalization, much of which was promoted on the idea trade was good for all parties concerned. Several flaws regarding this notion have revealed themselves in recent years calling for a reassessment of this theory. In short, it is time to honestly look at the role of trade and why it should be considered a double-edged sword. While the idea behind trade has a great deal of merit it is often given far more credit for economic growth than it should.

First of all, trade must be fair or it has the potential to damage one party or the other. The promise that increased trade will create new jobs has turned out to be largely a myth. History has shown that trade agreements with low-wage nations are not the great job creators we have been told. Instead, we have experienced a hollowing out of the middle class. This is why AdvancingTime has in the past banged away at the fact that where and what consumers buy matters.

The trade deficit with China continues to weaken America and strengthen our rival. Making your rivals stronger at your expense has always proven to be a mistake in the long run. The belief trade is a huge benefit to the masses is championed by large multinational companies that influence trade policies and have the most to gain. 

 

Many Americans tend to ignore the fact China is rapidly building factories in Mexico to sidestep tariffs. Geopolitics has made Mexico as a trade partner increasingly preferable to China. In 2023, Mexico overtook China as the United States’ largest goods exporter, based on recent trade figures. 

 

The U.S. imported nearly $476 billion from Mexico and shipped roughly $323 billion to its southern neighbor in 2023. Meanwhile, the Bureau of Economic Analysis reported that imports from China to the US fell by approximately 20% to $427.2 billion. This is partly due to American firms seeking to diversify their supply chains due to strained relations between the US and China. Some of this centers around national security worries, particularly in the area of technology.

Once Wealth flows To Asia, It Stays There

 

Even before China started manufacturing in Mexico, much of the money our neighbor to the south received by way of trading with America was quickly passing through Mexico and flowing to Asia. This means it could be argued that when all is said and done we were still transferring our wealth to the far east only by the scenic route. This is not a recent occurrence, numbers indicate that in addition to the United States, Mexico has for years been a huge importer of goods from China. 

 

In 2017 Mexico ran a trade deficit with China of around 64 billion dollars. In 2019, trade between the two countries reached 100 billion dollars with the deficit growing even larger. Mexico recorded exports to the Chinese market worth 7.1 billion dollars while Chinese exports to the Mexican market rose to 93 billion dollars.

 

The question we should ask is whether free trade is really a win-win. The answer probably falls into a grey area based on the terms on which transactions are based. There is a lot to be said for being self-sufficient. A strong case can also be made for favoring trade with nearby friendly neighbors rather than distant countries, such trade can improve the neighborhood. 

 

Those preaching the virtues of globalism and free trade point out that American consumers pay far lower prices because of this but overlook the fact that in the long run, such an imbalance will not end well. The reasoning that we are trading worthless dollars, currency, or paper for goods is a bit misleading. It might be more accurate to say we are trading away jobs, wealth, and even our future.  

 

Footnote; For more on this subject see the link below.

  http://Nafta And Regional Trade Better than Buying From China.html

                                                                              

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)