Question: Could you explain why we have a large trade deficit?

Alan Barnes

Answer:

Dear Mr. Barnes,

A timely question as statistics recently released by the Commerce Department show that that our January trade deficit was up over the previous month. Specifically, January's trade gap was $58.2 billion, up from December's $57.9 billion.

The primary reason behind the current deficit is the record cost of oil. The average price of crude oil in January hit $84.09 per barrel.

This country has what some economists call a "voracious appetite" for crude oil and thus we are forced to import huge amounts to meet the ever-growing demand. Among the oil-producing nations with whom we have a trade deficit are Nigeria, Saudi Arabia and Venezuela.

We also have trade deficits with Canada and China. In the case of Canada, we are primarily importing automotive parts and petroleum. Our significant trade deficit with China is based on our purchase of the country's apparel items, footwear, toys and electronic equipment, among other products.

Please note that our January trade gap grew even though we had a record high level of exports. The amount of U.S. made goods and services exported that month was $148 billion. High export figures are due to the weak dollar (versus the euro and other currencies) which makes American products cheaper for foreign buyers.

There are two views of the situation, especially vis a vis China. One is that the current administration's free-trade policies enable U.S. companies to more easily do business with foreign countries.

The other viewpoint, generally offered by the Democrats, is that the free trade policies have led to the loss of American factory jobs to countries with lower wages, such as China.

For thorough and continually updated reports on the trade deficit go to: http://www.census.gov/indicator/www/ustrade.html.

Good Luck!