What do you make of the Trade Deficit shrinking?
Best Answer
951 points
Grudun answered one year ago …
It is a good developement but the cause is not ideal. The dollar is weak so imports are costing more, also they cost more due to high oil prices and the cost of shipping. Since the imported junk is costing more the average person is buying less of it(including gasoline).
This will have a slight positive impact on the value of the dollar but more needs to be done at the federal level to encourage this trend. (Ideally a small tariff on ALL imports to equalize the tax included in each product's price or a overhaul of the tax system such as the "Fair Tax")
Answers
2709 points
Oldman answered one year ago …
I agree with Grudun's answer, and FYI, China's net balance of trade is also trending down, as costs for coal, oil, and steel are beginning to decrease it's former enormous positive balance of trade...their's is down about 50% from a year ago...it costs them more to produce and export, and costs of their imports, particularly coal, steel, lumber and other raw materials have doubled.
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3678 points
MNSL answered one year ago …
I have seen trade deficit is shrinking in many countries due to less import. Countries are not willing to pay higher prices for some items and commodities now. Every body think it is better we import less now. In some countries already began to produce food items, grain etc instead of importing from other countries. Because of this profit margin of some companies will increase medium term to long term while helping to reduce trade deficit.
When a country import more than export they will have negative trade balance. There was a time European, Australian etc used to export many luxury items, manufacturing items to foreign countries. Now their production-oriented industries have disappeared and even some service sectors have relocated in Asian countries such as India.
China has become world factory and they export almost all types of productions to other countries now. Therefore, they have favourable trade balance over other countries. However now their favourable trade balance is reversing due to higher import cost.
In the mean time in some points, China will reduce import of some commodities. Once they build up their major infrastructure projects and cities, they will have less demand for iron, cement, rubber and other commodities.
Currently some countries have favourable balance of payments due to higher commodity prices. However due to higher import cost this situation is changing fast gradually. More than that commodity-oriented countries are more vulnerable now.
It applies to the USA as well. If the USA reduces imports, their trade of balance will improve. I think in the near future the USA will import less due to the slower growth and the inflation. It is same in other countries as well. Care sales, housing sales and electronic items sales are falling rapidly. Therefore, they will reduce import of some items such as cars, electronic items and building products etc. These industries will have tough time.
Once the USA and other countries reduce their imports, some countries and companies will have negative growth period.
In short, current trade of balance will change world economy dramatically. When we do not have fast developing world trade then demand will reduce for many products including commodities. This situation will make some intelligent investors to find outstanding investment opportunities worldwide. Some companies will have advantage over others due to higher demand for their products and services.
