Essays on Trade Deficits Produce Different Jobs Assignment

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IntroductionTrade deficit refers to a country’s economic measure of a negative trade balance that results when the imports exceed exports. This way, trade deficit results in a domestic currency outflow to foreign markets (Douglas, 2003). For example, US’s trade deficit has been growing for the past ten years. As a result, large amounts of the US dollar are in foreign countries. Already, some economists are worried about it, especially with the realization that these US dollars in foreign countries may sell any time, and this potential increase in the sale of dollars may drive its value down, making it even harder for the US to buy imports (Shelburne, 1996).

However, this is apparently part of the problem. A 2011 Economic Policy Institute paper (Scott, 2010) concluded that the widening US trade deficit with China is responsible for the loss of 2.8 million jobs, -1.9 million of which are in manufacturing- between 2001 when China entered the World Trade Organization (WTO) in 2010. The paper noted that the deficit has grown from $84 billion to $278 billion within that period.

The paper attributed the trade deficit on China’s manipulation of its yuan, maintaining its value on the low to encourage huge bilateral surplus with the US; failed expectations that China’s demand for US good would grow; and unlawful policies and regulations, among others. According to the paper, $1 billion dollars worth of China-bound exports are meant to support American jobs. On a sort-of detour, $1 billion of imports brought in from China displaces US employees who could work making these products. Balanced trade therefore means that net job effect. Unfortunately, this trade deficit is hurting the US economy in an arguably unfair bilateral trade.

Many economists have made the same argument. Most economists believe that the perpetually growing US trade deficit pose a great threat to Americans. They attribute job losses in the US to the trade deficit (Duff, 2008). Running for the 1996 republican presidential nomination, Buchanan (2006) presented his own estimate of the number of jobs lost as a result of the trade gap. He wrote that a $1 billion dollars worth of trade gap caused the loss of 20, 000 jobs.

He further agued that a trade balance would thus provide 3.5 million manufacture jobs. And Scott (2001) argues that when the US imports a certain number of cars rather than build them at home, then the same number of workers in the US who would have been employed to build them lose jobs. To affirm these arguments, many economists had predicted that the wider trade deficit caused by the financial meltdown in East Asia would cost the US over a million jobs. These economists have been proposing that in order to hold this ‘threat’, the government needs to implement a number of policies that will curtail the expanding trade imbalances between the US and China, as well as the rest of the world.

However, I also noted that most of them expressed the thought that the US cannot create jobs now unless the deficit is taken care of. I find this latter argument different from the claim that the deficit has resulted in job loss. The assumption here is that this latter group does not exactly believe that the deficit is directly responsible for the reduction in employment.

They simply recognize the role that reducing the deficit could take in restoring the employment rate in the country.

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