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The term “trade balance” is defined as the sum of a country’s exports less its imports, in aggregate dollar terms. A negative trade balance is known as a “trade deficit” – i.e. where the value of imports exceeds the value of exports. Increases in the U.S. trade deficit since the 1970’s can be traced to three primary sources - a long decline in savings as a share of gross domestic product (GDP) that accelerated in the 1980s, fluctuations in the business cycle, and relatively attractive investment opportunities in the United States in the 1990s. At its current pace, America's trade deficit is expected to top 1 trillion dollars in 2008, with U.S. to China trade expected to balloon to a whopping 275 billion dollar deficit. On the flip-side, it’s estimated that 50% of China's trade surplus is due to exports to the United States. Imports of high-tech goods from China now account for over 95% of that deficit.
Politicians and industry pundits are watching countries such as China closely, and have made arguments to the World Trade Organization (the “WTO”) alleging that China subsidizes its own industries and penalizes foreign companies by incenting the purchase of locally produced goods and services. Arguments are ongoing in front of WTO panels, with China relenting on several of its policies in recent months. Washington continues to argue that a range of domestically produced goods in the United States, from steel, to paper, to computer products, are denied an opportunity to compete in the Chinese market and in third country markets where they are forced to vie with highly subsidized Chinese comparables. Policymakers could, of course, design broad and severe trade restrictions to close the deficit by choking off imports, but this form of artificial protectionism would likely be seen as “tit-for-tat” retaliation which would only serve to escalate tensions and encourage further imbalance in trade relations.
Regardless of Washington’s view, America’s appetite for products based on “the lowest price” is a huge contributor to recent acceleration in America’s trade deficits – many experts see this as a culmination of both the unbalanced nature of global trade and one of the "costs" of globalization and free trade.

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Americas Spiraling Trade Imbalance

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