American Political Economy

Posted by Winnie Melda on November 26th, 2018

According to the U.S. Commerce Department, the nation’s trade deficit for December 2015 was .4 billion

  1.         It is imperative that there is the resolution of the growing trade deficit in the US and needs to be addressed fast. The growth of the trade deficits results in major adverse impacts on the economy. The trade deficits impact the economy in a minimum of three ways, with the initial impact being the elimination of the manufacturing jobs. The fact that most of the jobs in the country are concentrated in manufacturing is mainly because the greatest proportion of trade in the US encompasses the sale of manufactured goods. The deficit is having an impact on the wages in an assortment of ways mainly by depressing the wages. The losses of jobs in the manufacturing sector see these employees seek for employment in other service sectors whereby the wages are considerably lower (Liew, 2010). The increase in imports from the countries that have low wages is additionally putting more downward pressure on the US employees. The fall in the prices of these products places downward pressure on the domestic firms in the US thus further compelling them to the employee wages and in other cases reduce their individuals’ labor costs. The issue of income inequality is additionally attributed to the growth in trade deficit which seen the stagnation in the living standards in addition to the dramatic increase level of income inequality (Weller, 2004). The growing pressure on the US firm to take their productions to the countries with low wages through the FDIs presents the additional reason as to why the trade deficit challenge needs to be addressed. The trend is increasing the recent times in the US which results in the elimination of the good jobs as well as the increase in the trade deficits. There additionally is the prevalent threat of the grave impact on the labor market. The threat of plants closing is one of the issues contributing to the growth in the wage cuts. The trade deficits are leading to a corrosive impact on the country’s long-term competitiveness of the trade. The soaring of the US dollar along with the trade deficits is leading to the domestic companies as well as industries in various sectors dependent on importing closing their operations. The common attribute with the closure of these firms is the fact that in the past they have been unable to recover even after the depreciation of the dollar as was the case with the steel industries in the 1980s. The overall impacts of the trade deficits have resulted in the elimination of millions of high-wage manufacturing jobs in the US. They have additionally resulted in a downward pressure on the production workers wages not only via the elimination of the good jobs but also placing major pressure on the prices of the domestically produced products (Cristina Maza, 2015). The attainment of this element is via decreasing the labor's bargaining power with the multinational corporations. These trade deficits have made it impossible to invest in the R&D interventions thus undermining the growth of productivity as well as contributing to the stagnation of the incomes that are plaguing the economy since the 1970s. Delayed response to the issues that are causing the deficit implies that the county is going to be progressively unable to invest in R&D interventions that present the best chances of rejuvenating the economy. Additionally, the failure to address these issues implies that more companies are going to result in moving their production activities to the countries with low wages, further reducing the number of good paying jobs available to the US citizens. The outcome of this element is the fact that there is additionally going to increase the levels wage inequality and consequently lower living standards. The failure to address the growing deficit implies that the domestic manufacturing companies in the US will be forced to cut the number of employees further in addition to cutting down the wages of these employees (Morici, 2009). The continued rise in the dollar rate will imply that the US domestic companies can only rely on importing raw materials, further cutting on the jobs and the failure to resolutely deal with the deficit will result in the closure of all the domestic manufacturing companies. The resultant outcome would be a fall in the economy as the country cannot solely depend on the service industry for its survival.
  2.         The federal government is best suited to deal with the trade deficit challenge. There various ways that the federal government could adopt in dealing with the countries trade deficit. Eliminating currency manipulations is one of the strategies that the federal government can employ in dealing with the huge trade deficits. Reducing taxation as well as federal spending is additionally strategy the organ can adopt in managing the enormous trade deficits that the country is facing (Cristina Maza, 2015). Devaluing the dollar is additionally a strategy that the federal government can employ in trying to make the dollar acceptable among the various partners by reducing its value.  Besides, the federal government can put in place policies that are geared towards protecting the domestic companies from the cheap importing by introducing certain measures to curb import of some products that put pressure on these companies (Morici, 2009). The main challenge with the increased importing is that the cheap products from the other countries make it hard for the domestic companies to get markets for their identical but expensive products. Thus, legislation policies that will raise the tax on some of these products will make them more expensive that the domestic, increasing the sale of the domestic products which translates into better wages.
  3.         Introducing exercise duties on various products imported into the country would be my advice to the government officials. Through the tax, the domestic industries would be absorbed from the negative impacts of the cheap imports which eat into their profitability and the consequent low employee remuneration (Morici, 2009).  The cheap imports are some of the reasons the domestic companies are falling as they cannot make sales which further leads to a decline in the living standards and the consequent growth in the wage disparity. The most likely adverse impacts of the proposal are that there is going to be uproar from the US citizens who feel they are being compelled to buy more expensive local goods when imports are cheaper and of the same quality. The additional and more adverse impact is that the major US trading partners are going to retaliate with their imports duties. In this case, the major partners are going to legislate policies increasing the import duty on the products imported from the US and thus further making the situation worse. The fact that the US cannot consume all their export designed products will put the country in a tight position. The decision is going to be on whether to protect their local industries or protect their interests with their trading partners.
  4.         I think that the future is promising for the US economy in dealing with the trade deficits via the implementation of the diverse policies. Through the introduction and implementation of the various policy measures, the country is going to cut on their trade deficits. Among the interventions that will see the country reduce the trade deficits include the promotion of labor rights along with environmental standards via aggressive agreements enforceable with trade sanctions. Coordinating the macroeconomic policies with countries as China and Europe, challenging these countries to stimulate as well as reflate their economies and thus create and export market (Liew, 2010). Launching attacks on the US export barriers as well as the additional policies and business practices introducing the subsidized and dumped products into the market. By dealing with these issues and introducing policies, the country is going to be able to re-energize their manufacturing sector, thus more success and reduction in the trade deficits


Liew, L. H. (2010). US Trade Deficits and Sino-US Relations. Journal Of Contemporary Asia, 40(4), 656-673. doi:10.1080/00472336.2010.507051

Morici, P. (2009). Reversing the US Trade Deficit with China. Harvard Asia Pacific Review, 10(1), 43-46.

Weller, C. (2004). The US Current Account Deficit. New Economy, 11(4), 243-248. doi:10.1111/j.1468-0041.2004.00373.x

Cristina Maza Staff, w. (2015, August 5). US trade deficit widens: Is it good news for the economy?. Christian Science Monitor. p. N.PAG.

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Winnie Melda

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Winnie Melda
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