US Trade Deficit Is $44.3 Billion In January

The US trade deficit in January is on a path to an annual trade deficit of over $500 billion.  Trade deficits are subtracted from GDP so they reduce the economic growth rate.  They also contribute to US budget deficits.  Employment and tax revenues would be higher if we produced the $500 billion of goods in the US.

There are two details in the report that aroused my curiosity.  Our trade deficit with China accounted for more than half of the trade deficit in January.  The report suggests that this is due to China's manipulation of its currency.  There is a better explanation for the trade deficit with China.  US firms have decided to manufacture their products in China because it is cheaper to do so in China.  They also hope to gain access to the huge market in China by locating production in China.  Oil imports also made a substantial contribution to our trade deficit.  That is not news.  Oil prices in the US have declined in the US because of new extraction technologies.  US refiners are taking advantage of lower costs by shipping refined products to international markets.  We seem to be importing more expensive oil while we are shipping cheaper refined products to international markets.  Gasoline prices are rising in the US as a result of this policy.