How to Understand the Growing Trade Deficit

The trade gap widened in December for the first time in four months and increased by nearly 33 percent in 2010; here's the good, the bad, and the "big question"

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We learned Friday that the U.S. trade deficit rose from $38.3 billion in November to $40.6 billion in December, as imports outpaced exports. In 2010 as a whole, the overall trade deficit grew at its fastest rate since 2000 and the trade deficit with China hit a record high. But what does that actually mean? The the news isn't all bad. Nor is it all good. And some say this whole discussion boils down to one commodity: oil. Here's our humble explainer:


  • Exports Rose  AFP's Veronica Smith notes this. In December, she points out, exports rose to their highest level since the summer of 2008, which will help President Obama in his quest to double exports by 2015.
  • Rising Imports May Signal Economic Recovery  The Atlantic's Daniel Indiviglio explains that an increase in imports suggests rising consumer and business demand, which can translate into higher sales for companies and more hiring. 
  • Trade Deficit Isn't 'Scorecard' for Global Trade  Cato's Daniel Griswold maintains that what's important is the total volume of trade, and by that standard the U.S. is doing well: "As economies expand, so does trade, both imports and exports. Exports help us reach new markets and expand economies of scale, while imports bless consumers with lower prices and more choices, while stoking competition, innovation, and efficiency gains among producers."


  • Trade Deficit Hinders Growth, Job Creation  Americans may be shopping again, says UPI's Peter Morici, "but too many dollars consumers spend go abroad to purchase imports but don't return to buy U.S. exports. This leaves too many Americans jobless and wages stagnant and the resulting slow growth leaves state and municipal governments with chronic budget woes."


  • Rising Energy Costs 'Bleeding the Economy', argues economic consultant Joel Naroff, as quoted by AFP. He observes that over 80 percent of the rise in import goods in December stemmed from crude oil, petroleum, and fuel oil purchases.
  • Trade Deficit Would Have Improved Without Oil, points out The Hill's Vicki Needham.
  • Lower Oil Prices = Lower Trade Deficit, agrees Raj C. Udeshi at 24/7 Wall St. He shows a graph indicating that the trade deficit and oil prices have "moved in lockstep" in recent years. If the U.S. wants to keep oil prices down, he says, it should strengthen the dollar by ending the Federal Reserve's debt-buying program or double down on alternative energy and energy efficiency.
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