US Trade Deficit: How Our Negative Balance of Trade is Harming the Recovery

America has tallied a $6.75 trillion net exports deficit since 2000. No matter your view on American trade policy, $6.75 trillion in reduced GDP cost this country the equivalent of over 3% in annual growth for over a decade and millions of potential jobs.

Net exports are the value of a nation’s total exports minus its total imports one of the components used in measuring gross domestic product.

GDP = C + I + G + Net exports

For decades, economic analysts have disagreed over the impact of net exports on a nation’s financial well being. Some economists believe that a trade surplus creates employment and increases GDP growth. Others believe that the balance of trade has little impact.

America has not had a trade surplus since 1974. The following chart based on data from the U.S. Census Bureau Foreign Trade Division traces the recent history of America’s trade deficit. 

Since 1974 our nation’s gross domestic product has been fighting a losing battle against net exports. America’s downward slide in net exports peaked in 2005 when it had a 6% impact on gross domestic product. Yet many leading economists consider net exports a non-issue, citing the fact excluding crude oil imports the nation’s trade balance today in nominal dollars is similar to what we experienced a decade ago.To put a little perspective on how large our $6.5 trillion net export deficit has been since 2000, the national debt’s growth over the same period was $9 trillion and some consider that a crisis.

America’s trade policy continues to be a political football. It has been blamed for the loss of our middle classes manufacturing and industrial base sighting our massive deferential in net goods balance. Alternately, it has been noted as a vast possible expansion of our service sector as realized in our growing net exports.

Regardless of your view on America trade policy, our nation continues to face a significant reduction in GDP due to our net export balance. What policies we take to reduce or better yet reverse our net export balance into a trade surplus are likely to be major factors in the strength of America’s economic recovery.

I hope you will join us for part six of this series as we begin to pull together the pieces of the puzzle from series on GDP developing a picture of where the nation’s future recovery can be found.

The first four essays in this series can be found in the Business section of PolicyMic:

GDP and the U.S. Economy, 3 Ways to Measure Economic Growth

US GDP is 70 Percent Personal Consumption

US GDP: How Three Types of Investment Impact Economic Growth

Government Spending and GDP: A $5.4 Trillion Benefit Who Some think is Pending Disaster