Brookings Podcast on Economic Activity Why does the US have a trade deficit?
Apr 17, 2025
Maurice Obstfeld, an economist at the Peterson Institute for International Economics and author of "The U.S. Trade Deficit: Myths and Realities," dives into the complexities of the U.S. trade deficit. He discusses how domestic policies shape the trade imbalance, rather than just external pressures. The conversation highlights the impact of recent tariffs and examines misconceptions around the trade deficit's causes, including the historic shift from surpluses to persistent deficits. Obstfeld also explores implications for manufacturing jobs and the overall economy.
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Trade Deficit Driven by U.S. Budget Deficit
- The U.S. trade deficit primarily reflects the nation's budget deficit, meaning higher U.S. consumption than income.
- Addressing the deficit requires internal U.S. fiscal adjustments, not blaming foreign trade partners.
Manufacturing Decline Is Structural
- The durability of the manufacturing decline stems mainly from rising productivity, not trade victimization.
- The U.S. trade deficit is a macroeconomic issue indicating the country spends more than it produces.
Fiscal Deficit Fuels Trade Deficit
- The large U.S. fiscal deficit strongly links to the current account deficit due to low national saving.
- Reducing the federal deficit is crucial to improving the trade balance and manufacturing support.