Trade deficit

A trade deficit exists when a country imports more goods and services than it exports. The United States has run a trade deficit in goods nearly every year since the 1970s, with a smaller surplus in services, and the overall deficit has reached hundreds of billions of dollars a year. The opposite is a trade surplus.

Economists note that trade balances mirror capital flows: a deficit means foreigners are investing in or lending to the U.S. in the amount of the gap, and it is related to national saving and investment. A trade deficit can reflect a strong economy and demand, a strong dollar's role as a reserve currency and low domestic saving. The balance with a specific country, such as China, is a bilateral measure that does not capture overall flows.

Many politicians treat deficits as a sign of unfair trade and a loss of jobs, and have used tariffs to reduce them; most economists argue that the deficit is not by itself a measure of harm or of how well trade rules work, and that tariffs often fail to reduce the total. Supporters of protectionism counter that persistent deficits have hollowed out manufacturing. Others note the relation to the budget deficit, though the two are not the same. See free trade.