Sample Economics Essays on The US Trade Deficit

The US is running on a trade deficit neither because of poor nor bad trade deals but because of increased expenses. The American citizens spend more than they earn and finance the difference with credit from outside the U.S. For instance, the households, firms, and government spent $19.1 trillion and earned $18.6trillion, thereby creating a difference of $500 billion, in 2016. The country can employ several means of reducing the shortfall (Freund 28).

US citizens should consume less and save more. By doing so, the government and household would reduce consumption, thereby reducing imports and borrowing. When there is a no deficit in the expenditure, US will not borrow from abroad. Additionally, the consumption taxes would help reduce the deficit by discouraging consumption and boosting savings. However, the suggested unfunded tax decrease by the administration may result in anincrease in the trade shortfall because it will be taking up more than its comparative earnings (Freund 54).

The government should also reduce the exchange rate with which it conducts its trades. The trade deficit reversals are a product of a reduction in the exchange rate. A weakened dollar means that imports are expensive and exports are cheaper, thereby increasing expenditure and reducing earnings (Freund 103). In this sense, the government ought toemboldenthe use of other nation’s currencies, as substitutes for reserve currencies to balance their profits and expenditure.

The tax capital inflows increase the trade deficit because borrowing is easy and repaying is hard. In retrospect, if borrowing money from abroad were expensive and difficult, the US would borrow less. Taxing capital inflows based on the inflow would reduce the excessive borrowing for usage and help bring equilibrium in the government’s expenditure (Freund 46). Some capital controls would destroy prices of numerous assets and discourage investments; however, they could also control extra hypothetical investment.




Work Cited

Freund, Caroline. “Three ways to reduce a trade deficit.”Global Trade, 17 November 2017.