US Economy: America’s trade deficit is a big drag on the economy - but is it really?

According to the Wall Street Journal, the U.S. non-petroleum trade gap last year was the highest ever recorded — and that’s after adjusting for inflation. 

It paints a depressing picture where every day Americans import over a billion dollars more in goods from other countries than they export. 

The Government reported trade deficit with just China and the European Union totaled half a trillion dollars in 2014.  If U.S. trade with the rest of the world were balanced, the nation’s economic growth rate last year would have been 3.6% rather than 2.6%.

It seems therefore to some that America's widening trade and current account deficits, that when it comes to selling goods and services overseas, U.S. firms are either uncompetitive or unfairly treated in various foreign markets — or both.

The Globalist notes: "Nothing could be further from the truth."

One of the most dangerous deficits today is not one of trade — but rather a deficit in understanding how U.S. firms compete and sell products in the world marketplace.

Simply put, American firms compete more through foreign direct investment — where they usually establish a local presence in international markets by operating on the ground — rather than through arm's-length trade.

Because foreign affiliate sales are not included in U.S. exports, a great deal of global commerce is missing from the officially reported trade figures.

Accordingly, while the monthly trade deficit paints a depressing picture of U.S. global commerce, investors would do well to remember that U.S. multinationals have more than 30,000 foreign affiliates strategically located around the world. And these affiliates are ringing up record earnings.

Bottom line: please take the depressing news about the US ever increasing trade deficit with a grain of salt  Even though the statistical graph on the deficit seems to be going higher and higher and the global image of the United States as a savvy trader lower and lower — the global earnings of U.S. multinationals have never been higher. It is all a question of perception.

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