The first recorded trade surplus of the United States dates back to the 1800s when it was exporting raw materials like cotton and tobacco and several manufactured goods to continental Europe and elsewhere. Historical data showed that it had already run some annual trade surpluses by 1870. It transitioned further into a net exporter by the 1890s due to industrialization.
Moreover, a considerable level of surpluses occurred during the First and Second World Wars due to a high global demand for war materials. This persisted from the 1950s to the 1960s because of the strong manufacturing sector and the dominant global position of the country. However, the last annual trade surplus was in 1975. The U.S. had a trade deficit each year since.
Understanding Why The United States Imports More Than It Exports: Explaining the Persistent U.S. Trade Deficit
A trade deficit occurs when the value of imports of a particular country exceeds the value of its exports during a given period. This means that this country is importing more goods and services than it exports. The simplest formula for computing trade deficit is by subtracting exports from imports. A positive number means that a country has a deficit and a negative number indicates that it has a trade surplus. Both deficit and surplus are trade imbalances.
Note that the trade deficit is expressed in monetary values. The most latest economic data showed that the United States had a deficit worth USD 951.2 billion in 2022. This decreased to USD 779.8 billion in 2023 with exports amounting to a total of USD 3.05 trillion versus imports of USD 3.83 trillion. The trade deficit increased again by the end of 2024 by 17 percent at USD 918.4 billion with USD 3.2 trillion in exports and USD 4.1 trillion in imports.
Remember that the U.S. has been experiencing persistent trade deficits since 1976. There have been some fluctuations over recent years. The situation remains a focal point in economic discussions. Donald Trump has made this one of his flagship political agenda at the beginning of his second term as the U.S. president. He imposed a 10 percent universal tariff and a specific higher tariff on China to address the trade deficit and bolster domestic industries.
Several economists have argued that attempts to resolve the U.S. trade deficit through tariffs are counterproductive because they endanger domestic industries and businesses reliant on the global supply chain, run the risk of trade wars through retaliatory tariffs, and weaken the dominance of the United States in international trade. Nevertheless, in understanding and addressing this issue, it has become imperative to understand why the U.S. imports more than it exports.
Macroeconomic Factors of the U.S. Trade Deficit: From Savings and Investment Balance and Government Budget Deficit to Economic Growth and Strong Domestic Demand
1. Imbalance Between Savings and Investment
An imbalance in savings and investment refers to the difference between how much a country saves and how much it invests. Specifically, when a country like the United States invests more than it saves, it must borrow from abroad to finance the difference. This borrowing shows up as a current account deficit and includes the trade deficit.
Historical data from the Bureau of Economic Analysis and the Federal Reserve Economic Data showed that the U.S. saved about 17.3 percent and invested 21.3 percent of its gross domestic product in 2023. This accounted for -3.6 percent of the current account balance. This indicated that the Americans as a whole spend more money than they make.
2. Government Budget Deficit and Foreign Debt
There are more specific reasons for low gross national savings in the U.S. One of which is a high consumer spending culture. A lot of Americans tend to spend more and save less. Moreover, despite rising income in most states, personal savings have not grown proportionately. The government also reduces national savings whenever it runs a deficit.
It is also important to underscore the government budget deficit as one of the reasons behind low gross national savings and an important cause of the U.S. trade deficit. Increased government spending that leads to a larger federal budget deficit can reduce the national savings rate. A portion of the budget deficit is often financed through foreign debt.
3. Strong Economic Growth and Domestic Demand
The U.S. trade deficit is also an offshoot of economic growth. Some economists have argued that the persistent trade deficits of the country are a sign of its persistent global dominance. Time magazine noted that the Chinese and Indian economies have grown faster than the U.S. but their living standards do not come close to American standards.
Deficits in trade tend to increase further during periods of economic expansion since business activities and general consumer spending are higher. For example, when its real GDP was at negative 2.8 percent in 2020, its deficit was at USD 681 billion. Real GDP bounced back to 5.9 percent in 2021 and the deficit ballooned to USD 859 billion.
4. The Role of the U.S. Dollar as a Reserve Currency
Another considerable macroeconomic and structural factor behind the U.S. trade deficit is the role of the U.S. dollar as the main reserve currency. Various central banks, business organizations, and other international institutions hold U.S. dollars in significant quantities to settle global trade transactions and maintain foreign exchange reserves.
Foreigners must sell to the U.S. to obtain dollars. This can result in an overvaluation of the dollar and further result in U.S. exports becoming more expensive and imports cheaper. The U.S. must also export dollars by importing more than it exports to maintain the elevated status of and global demand for its currency. This is called the Triffin Dilemma.
Influence of Global Economics Shifts on the U.S. Trade Deficit: The Rise of Global Value Chains, Increased Competitiveness of Other Countries, and Trade Liberalization
1. Emergence and Prevalence of Global Value Chains
Several products are made with components from multiple countries. Others are assembled outside the U.S. Most American companies also tend to specialize in high-value-added services or either pre-production or post-production stages. Data often overstate the U.S. trade deficit because they do not account for embedded U.S. value-added in imports.
Consider the iPhone from Apple. It is assembled in countries like China and then imported to the U.S. It shows up as a USD 400 to USD 500 import but only USD 8 to USD 15 of that value actually stays in the origin country. Most of the value comes from Apple. However, in trade statistics, the entire value is recorded as an export to the United States.
2. Increased Competitiveness of Foreign Manufacturing
American manufacturing began to decline in the late 1970s and early 1908s due to a combination of automation, economic globalization, and outsourcing. Other countries, particularly Asian countries like China and Japan, have become highly competitive in manufacturing often because of lower labor costs and dedicated government support.
Most labor-intensive industries moved to China, Mexico, and Southeast Asia in the 1990s. China had an emerging manufacturing sector in the mid-1990s and its export manufacturing sector grew rapidly beginning in the 2000s. U.S. manufacturing jobs went from 19.5 million in 1979 to 11.5 million in 2010 and slightly bounced to 13.0 million in 2023.
3. Trade Liberalization and Other Trade Practices
Efforts aimed at reducing or eliminating trade barriers are called trade liberalization. The U.S. has been a leader in this process. It entered various free trade agreements and joined non-state actors like the World Trade Organization. However, this openness exposed domestic industries and sectors like manufacturing and textiles to global competition.
Other trade practices of other countries also disadvantaged U.S. exports. Some countries like China devalue their currencies to make exports cheaper. The European Union subsidizes agriculture to make it more competitive. Some argue that the U.S. faces non-reciprocal trade relationships where other countries have higher tariffs and non-tariff barriers.
4. Role of Different Comparative Advantages
The liberal trade policies of the U.S. also mean that it adheres to the main tenets of comparative advantage. The idea is that countries would benefit more if they export products in which they are more efficient and import ones in which others are more efficient. This leads to gains from trade but can also result in persistent trade surpluses or deficits.
Nevertheless, in the case of the American economy, it is now more focused on services, advanced technology, and capital-intensive goods, rather than labor-intensive manufacturing. This results in the fact that the country imports more goods and exports more services. Traded goods tend to have more weight in most standard trade balance calculations.
Explaining the U.S. Trade Deficit in a Nutshell: Important Pointers to Remember and Other Points to Consider
The causes of the U.S. trade deficit or the reasons why the American economy imports more than it exports are complex. The issue stems from a combination of macroeconomic factors, changing global trends, and the dynamics in international trade. Some of the salient factors behind its trade deficits are the emergence of economies with strong export sectors and the growth of the U.S. economy that fuels demand for imported goods and services.
Economists have different opinions on the implications of trade deficits. Some argue that large and persistent deficits can harm domestic industries and lead to a decline in employment in certain sectors. This is agreeable. However, for other economists, these deficits can reflect strong domestic demand and provide access to a wider range of goods for consumers, potentially leading to economic growth if financed by productive investments.
FURTHER READINGS AND REFERENCES
- Bureau of Economic Analysis. n.d. Bureau of Economic Analysis, Department of Commerce. Available online
- Washington International Trade Association. n.d. “The U.S. Trade Deficit.” Washington Trade Association. Available online
- Wiseman, P. 9 April 2025. “Economists Say America’s Trade Deficits, Which Trump Seeks to Close With Tariffs, Are a Sign of Dominance Not Weakness.” Time. Available online