The United States’ trade deficit rose in October due to a decline in exports, a stronger dollar and an increase in domestic demand have limited the amount of exports. Exports slummed almost 2% while imports increased 1.3%. The trade gap soured 17.8% from the previous month.
Oil prices have had a major effect on U.S. imports. Historically, the U.S. have had a large petroleum trade deficit. However, as the price of oil and the value of the dollar rises the purchase is becoming more of a burden on U.S. imports. The U.S has bought 7.3 million barrels per day of crude oil in October, at a price of about $40.
In addition to this, seasonal commodities such as soybean had a negative effect on the U.S. trade deficit in October. U.S. soybean exports reach their pinnacle after the summer harvest.
Furthermore, the effects of the Great Recession can still be seen in the trade deficit. The slowdown in the job market coupled with an over-valued dollar has edged the trade deficit upwards. In the years following the Great Recession the trade deficit hovered around 3% of GDP. The deficit curtailed demand which further hindered growth.
President elect Trump has promised major policy reforms, aimed at combating the trade deficit. Misguided policies including major tax cuts which could fuel domestic demand, thus causing a further increase in imports. As well as tariffs and immigration policies designed to shelter the U.S. from the ever expanding effects of globalisation.
Interestingly, overall the price of imports in the U.S. has fallen in the past few years. The effects of swollen domestic costs and lack of competitiveness can be seen in the U.S. as the price of goods and services produced in the U.S. have risen.
Trade deficits can have stark consequences. Imbalances can lead to the loss of domestic jobs to foreign nations. Some analysts believe the deficits can even cause recessionary-prone financial bubbles. What is needed is strategic contingent policies to help depress these side-effects. However, in practice, a mountainous endeavour.