U.S. Trade Deficit Could Be Worse

A bustling commercial shipping port with rows of colorful stacked containers, large red cranes, and container ships under a partly cloudy sky at sunset.

The trade deficit refers to the difference between the value of goods and services the US exports and the value it imports. In May 2024, this gap increased to $75.1 billion. This means the trade deficit was higher than any month since October 2022.

There was a small increase of $0.6 billion from the revised deficit of $74.5 billion in April 2024. Economists had predicted a larger deficit of $76.2 billion, so the actual number was better than expected.

Does the trade deficit matter?

Imagine the trade deficit is like your net spending. If you export more than you import, it’s like earning more than you spend (positive net income). A trade deficit happens when you import more than you export, or spend more than you earn (negative net income). In this case, the net spending increased slightly in May compared to April, but it was still lower than what some people expected.

But is a nation’s trade deficit really the same kind of problem as the household that’s always in the red?

One of the problems with a trade deficit is that it can encourage foreign investment. For a cash-strapped country, foreign investment can seem like a good thing. It brings additional funds into the country. For other countries, though, it can lead to a sort of economic colonization, with much of the assets of the nation in the hands of foreign investors.

The U.S. isn’t really in danger here, but increase imports and reduced exports can also lead to loss of employment and threats to local companies if they can’t compete with the foreign makers.

A trade deficit — like overspending in a household — can also lead to excessive debt. That’s something the U.S. is very familiar with, and a trade deficit can exacerbate the problem.

Too soon to worry

The U.S. trade deficit fell significantly in 2023, after peaking in 2022. It’s on the way up again, but not as much as anticipated.

Still, the U.S. currently has the largest trade deficit in the world. The last time we had a trade surplus was in 1975. In 1998, a U.S. Senator from the Finance Committee warned Congress, “Unless we address the concerns of the American public over trade, the current hostility may foster a new isolationism, the urge to throw up a protective wall around us to stave off the economic changes at loose in the world. That would have devastating economic consequences.”

Consumers and businesses can improve the trade deficit by saving more and spending less, and by buying American goods instead of imports. Making our exports appealing to other nations and making more of our goods here in the USA would also help.

But it may not be necessary.