Author:  R. Alan Harrop, Ph.D. 

What is a trade deficit and why it is bad for America? This is an important question and explains in large part why President Trump is implementing new tariffs. Let’s take a look.

A trade deficit refers to the difference between the value of the goods that one country imports (i.e. buys) compared to what that country sells to a particular country. So, for instance, the United States, in December 2024, purchased 50 billion dollars’ worth of goods from China and they purchased 12 billion dollars’ worth of goods from us, resulting in a trade deficit of 38 billion dollars. An analogy would be if you had chickens and sold eggs to a neighbor worth 20 dollars each month, and in turn, bought 30 dollars’ worth of vegetables each month from that neighbor. If so, you would have a trade deficit of 10 dollars each month or 120 dollars in a year. The neighbor would be 120 dollars richer at the end of the year. In ten years, it would be 1200 dollars. In 2024, the United States had a trade deficit of 280 billion dollars with China alone. Our total trade deficit worldwide was 971 billion dollars in 2024. This is not good and significantly diminishes our total wealth. Instead of getting richer from trade with other countries, we are getting poorer.

The problem is not just with China’s 280 billion. We also had a trade deficit with the European Union of 236 billion; Mexico 152 billion; Vietnam 104 billion; Japan 71 billion; and Canada 68 billion. You get the picture. A large part of the problem is that we have allowed our manufacturing to move overseas and consequently we have to purchase most manufactured goods from other countries. Estimates are that over 70,000 manufacturing plants have closed in the U.S. over the last 50 years, many of which have occurred since China was given most favored trade status by President George Bush in 2001.  Not smart.

Historically, nations have tried to eliminate trade deficits in many ways. The most notorious was what Great Britain did with China in the mid-1800s. As tea drinking expanded in Great Britain, they found themselves importing increasing amounts of tea from China. However, they were not selling significant amount of their manufactured goods to China resulting in a large trade deficit. In order to reduce the trade deficit, Great Britain began trading opium for tea. The result was an explosion of “opium dens” and resulting drug dependencies within the Chinese population. Sounds somewhat like what China is now doing to us with the fentanyl crisis we are facing. While also addictive, opium does not have the lethality of fentanyl. In the early 1900s China took action to halt the opium problem, in part, by implementing the death penalty for any of their citizens engaging in the opium trade.

Granting favored trade status to a communist regime by President Bush was apparently done with the naive hope that engaging in free trade would move China towards democratic practices.  No such thing has occurred.  In fact, all we have succeeded in doing is enriching a communist country that is determined to defeat us both economically and militarily. The trade deficit we are continuing with China is sowing the seeds of our own destruction.  We finally have a president who has the wisdom and courage to address this issue. We must return manufacturing to this county.  Reducing unnecessary regulations, doing away with expensive and handicapping wind and solar energy, imposing tariffs that even the playing field, as well as safe guarding our technological advances are all needed to solve our trade deficit crisis. Let’s hope that Congress will support President Trump in getting this done. It is long overdue.