How America Went from Maker to Taker
Chart of the Week #28
Everyone's talking about Trump's re-election this week – I'm guilty of it myself (catch up here if you missed Thursday's piece) – so I thought it fitting that this week's Chart of the Week focuses on trade deficits. After all, fixing America's "horrible trade deals" has been a cornerstone of Trump's "Make America Great Again" campaign from day one. And today's chart shows exactly why this resonates with so many Americans - namely, the collapse of our trade balance from a $6 billion surplus in the 1960s to a staggering near-trillion-dollar deficit under Biden.
The story of America's trade balance is essentially a tale of four distinct eras…
First you had the "golden years" from 1960 to the mid-1970s, when America was still a manufacturing powerhouse and our trade showed consistent surpluses. It's almost hard to believe looking at the graph above, but there it is in blue and white: America was once a net exporter.
Next came the slow decline from the late '70s through the '90s, as we started shipping our manufacturing jobs overseas. Even then, the deficit rarely exceeded $200 billion.
The real nosedive started in the early 2000s. China joining the WTO in 2001 opened the floodgates, and our trade deficit plunged to nearly $800 billion by 2006. Yes, the 2008 financial crisis "helped" temporarily – though only because Americans were too broke to buy imports.
And then came 2020—what a mess. The trade deficit surged to nearly $1 trillion by 2022, thanks to the government’s disastrous handling of the pandemic. Lockdowns disrupted domestic production while stimulus checks sent Americans on an unprecedented foreign shopping spree. The math was pretty simple: print money + shut down domestic production = massive trade deficit.
Yes, the deficit has pulled back from its COVID lows since, but only because it hit rock bottom and then dug deeper. Any recent "improvement" mainly comes from Americans cutting back as inflation and high interest rates pinch their wallets—hardly a sign of economic recovery. We're still way behind pre-pandemic levels, and with the deficit already at $661 billion in 2024 (with months still to go), it's clear we're stuck in this hole for the foreseeable future.
The consequences of this persistent trade deficit are very real. Every negative number on this chart represents America consuming more than it produces, borrowing from abroad to fund the difference. It means fewer manufacturing jobs at home and greater dependence on other nations for critical goods.
Now, Trump is calling for a 10% universal tariff on imports and a 100% tariff on countries that don’t play by the dollar. But I'm skeptical. As Doug Casey often reminds us, government regulations – including tariffs – are just another distortion in the marketplace, like taxes and inflation. While such distortions create opportunities for speculators—like us and our subscribers—they rarely fix what’s actually broken.
At any rate, interesting – and opportunity-filled – times lie ahead.
Have a great weekend!
Lau Vegys
Well, just a “tongue in cheek observation”, but Russia seems to be doing better economically after all of the insane sanctions that the Biden Administration put on them. Seems being “isolated” has advantages. Less taxes on companies that bring production back to our shores makes sense. Let’s face it, no country on earth truly has free trade. “Free Trade” has been a false narrative from our media propaganda outlets for way too long and helped destroy the core of America, it’s working class. And please don’t use China and their centrally planned economy as an example of “free trade”. Personally, I hate the cheap auto parts that they make, they have about a 60/40 reliability ratio. Cheap goods seem like a good idea until you look a little farther down the road and have to walk back home.
One would hope that those tariffs would encourage companies to bring jobs back to America. After all, no matter how cheap junk from China may be, if you don't have a job and no income, you can't afford it. Personally, I think tariffs should be much higher on American companies who decided to relocate our jobs to other countries.