Why Does the U.S. Always Run a Trade Deficit?

Federal Reserve Bank of New York ^ | May 20, 2025 | Thomas Klitgaard

[karpov]

The obvious answer to the question of why the United States runs a trade deficit is that its export sales have not kept up with its demand for imports. A less obvious answer is that the imbalance reflects a macroeconomic phenomenon. Using national accounting, one can show deficits are also due to a persistent shortfall in domestic saving that requires funds from abroad to finance domestic investment spending. Reducing the trade imbalance therefore requires both more exports relative to imports and a narrowing of the gap between saving and investment spending.

Grounded by Accounting

To give some intuition for why the trade deficit is equal to the gap between saving and investment spending, assume the U.S. economy is closed to the rest of the world. That is, there are no imports or exports. Spending is either on the consumption of goods and services or investment spending on equipment, structures, and intellectual property products. Income is allocated to either consumption or to saving by households, businesses, and government. In a closed economy, spending equals income—that is, the sum of consumption and saving equals the sum of consumption and investment spending.

Spending (Consumption + Investment Spending) = Income (Consumption + Saving)

Because consumption drops out on both sides of the equation, investment spending equals domestic saving in the economy. This makes sense: the funds available to invest in productive projects have to come from domestic savers.

Opening up the economy to external borrowing or lending allows domestic saving and investment spending to diverge. In the case of the United States, the economy borrows from the rest of the world because domestic saving is insufficient to fully finance investment spending.

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TOPICS: Business/Economy
KEYWORDS: trade; tradedeficit

[karpov]

An overall trade deficit or a trade deficit with a single country is not necessarily the result of trade barriers.

[tired&retired]

I don’t agree with the second part of their explanation.

There are many other variables they are not considering. Their over simplification is wrong.

[BobL]

“Why Does the U.S. Always Run a Trade Deficit?”

Give credit where it’s due - our LABOR UNIONS - they FORCE US manufacturers to spend (waste) their money on labor, rather than engineering and materials. They’re the reason I won’t buy an ‘American’ car, so all that money goes overseas. After all, I may be Patriotic, but I’m not a Fanatic.

[Leaning Right]

No mention in the excerpt of cheap Chinese slave labor. I’m not an economist. Nevertheless, I pretty sure that plays a role in the deficit.

[kosciusko51]

Not to mention excessive regulations of the manufacturing process that increases costs as well.

[CodeToad]

Because our polidiots are on the take. We are no longer a national of laws. We are an outlaw nation.

[Jonty30]

In part, because CEO’s look at the profit margin and their company makes more money producing products in China and shipping them into the US.

[BobL]

“Not to mention excessive regulations of the manufacturing process that increases costs as well.”

Yet another reason to THANK THE UNIONS - they get the Democrats elected to do just what you’re referring to.

(apologies to our local shop steward, he’ll soon show up to defend those monsters)

[ABStrauss]

We’re not frugal.

Too many crooks in Congress.

Only two great presidents since 1900

Politicians are a gluttonous breed.

Nation has a vast corrupted underclass that thrives on welfare.

[ABStrauss]

I forgot the damned unions!

[Jolla]

I like French wine and French cheese. It cost $15 to get a decent Bordeaux, it cost $25 for a decent bottle of California Cabernet.

[Red Badger]

“Why Does the U.S. Always Run a Trade Deficit?”

Because we don’t make anything other countries want to buy?..............

[Mr. Jeeves]

Big Ag poisons our food to lower prices, pump up stock value, and pay off farm state Senators. We could export a lot more - and greatly improve public health - if they knocked it off.

Many other things we make are too expensive for export due to the cost of labor and the inability to automate production, due to…labor.

We will always run a trade deficit. It isn’t our biggest economic problem.

[kosciusko51]

Or if we do, other countries put massive tariffs to protect their domestic products.

[Nateman]

I can it a trade surplus. We get their stuff, they get our paper.

[Alas Babylon!]

The USA is the biggest consumer market in the World.

We like to buy stuff and many of us have the means to do so (not saying many aren’t poor or over their heads financially) unlike many other populous countries.

Honestly, I think we buy too much unnecessary junk, but what’s junk comes down to taste and function. I buy way too many guns and gardening stuff, etc.

[PeterPrinciple]

I can it a trade surplus. We get their stuff, they get our paper.

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we get their crappy stuff and they get our crappy money.

I remember when we bought good stuff here.

[logi_cal869]

Agreed. Reads like gaslighting to me.

Propaganda.

[pierrem15]

Using national accounting, one can show deficits are also due to a persistent shortfall in domestic saving that requires funds from abroad to finance domestic investment spending.

Nonsense. What happens is that government deficit spending subsidizes current consumption to buy votes and "free trade" ensures that a good chunk of that subsidized consumption is sent abroad or results in asset inflation benefitting the top few percent of Americans.

[thefactor]

Trade deficits are not bad things.