Is America’s Trade Deficit a Big Problem? (Spoiler: Not Really!)

Okay, so let’s talk about a financial term that gets a lot of attention—trade deficit. You’ve probably seen headlines like “America’s trade deficit hit $78.2 billion!” and thought, “Uh-oh, that sounds bad.” But hold up—before you start imagining a financial apocalypse, let’s break it down. We’ll show you why the trade deficit isn’t nearly as scary as it sounds, and why it might actually be a good thing.

What’s a Trade Deficit, Anyway?

In simple terms, a trade deficit happens when a country imports more stuff than it exports. So, if we’re buying more from other countries than we’re selling to them, that’s a trade deficit. In November 2024, for example, the US bought $78.2 billion more than we sold. 😱

But here’s the thing: Many people think a trade deficit means a country is failing or in trouble. “It’s bad for businesses,” “it hurts workers,” “we’re depending too much on other countries!” Sounds dramatic, right? But let’s look at it from a different angle.

The Truth About Imports

First, let’s get one thing straight: Imports aren’t the enemy. In fact, we need them! Imports play a huge role in the US economy and create jobs. A lot of things we buy here—think electronics, cars, or clothes—are made overseas. But that doesn’t mean American workers are out of jobs. In fact, many American businesses rely on imports to make their products. Did you know that most of the cool stuff made in America is actually made using materials or parts that come from other countries? Things like metals, chemicals, and raw materials—stuff we need to build everything from phones to cars.

And let's not forget all the people employed in industries that help sell, repair, and service imported products. Ever been to a car dealership? Those workers are part of the global trade story, too. It’s not just the stuff that’s made overseas; it’s the people who work with it once it gets here. Plus, those workers aren’t going anywhere anytime soon.

But What About Jobs Going Overseas?

Ah, yes, the big fear that everyone loves to talk about—jobs going overseas. It’s true that some jobs are outsourced, but it’s not as bad as it sounds. In reality, a lot of US industries are growing because of imports. Remember, when companies sell us stuff, they usually end up investing that money back in the US. This could be in factories, new businesses, or cutting-edge tech. Foreign investment actually helps grow the economy by creating jobs right here at home.

Trade Deficits Aren’t Always Bad News

Here’s where it gets interesting: a growing trade deficit might actually be a sign of a healthy economy. Wait, what? Yes, it’s true! When people are buying more stuff from other countries, it could mean that domestic demand is strong. More people spending money? That’s a good thing! It’s a sign that the economy is doing well.

And, guess what? The US has had a trade deficit for decades—since the 1970s! Yet, our economy has still grown massively during that time. In fact, trade deficits often widen when things are going great. If you look at the pandemic years (2020-2022), imports shot up because the economy was bouncing back fast, and people were spending again. That’s not a disaster; it’s a recovery!

The Bigger Picture: Total Trade Matters More

Here’s a secret: instead of focusing solely on the trade deficit (imports > exports), it’s better to look at total trade—that’s the combined value of both imports and exports. This tells you a lot more about how the global economy is performing.

When the economy’s booming, both imports and exports rise. During the 2008 financial crisis, total trade dropped off because demand for goods was weak worldwide. But when the economy recovers, trade picks up again, which is actually a good sign. The US isn’t stuck with a trade deficit in a negative way—it’s just part of a dynamic, growing economy.

But Aren’t We Losing Out to Other Countries?

Some people argue that we should “make more things in America” to help boost growth and jobs here. Fair enough. But here's the kicker: even if we could make everything locally, we’d still need some imports. Take oil, for example. The US is the world’s top oil producer, but we still import a lot of oil because our refineries are set up to process different types of crude than what we produce. Weird, right? But it works out because we export the oil we have, and import the kind we need. It’s all about comparative advantage—the idea that it’s better for each country to specialize in what they do best.

So, Should We Worry About the Trade Deficit?

Here’s the bottom line: while it’s true that the US runs a trade deficit, it doesn’t mean we’re in trouble. In fact, it’s a sign of a strong economy where people are consuming, businesses are growing, and countries are investing in our future. So next time you hear about the “giant sucking sound” of imports, just remember: it’s actually part of the global economy working in our favor. Trade is about connection, not conflict.

And for investors, the trade deficit isn’t something to fear—it’s a part of the system that keeps things moving forward. 📈

*The information presented in this Presentation is the opinion of the author and does not reflect the views of any other person or entity unless specified. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. The information provided is for informational purposes and should not be construed as advice. Advisory services offered through In The Money Retirement, an investment adviser registered with the state of Connecticut.