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Thursday, January 19, 2017

What's really behind our trade deficit?

Every year the US Census tabulates our imports and exports. Following that link, you can see that the current value of net exports, i.e. the difference between exports and imports is -$500 billion.

So what's the big deal about a trade deficit?

Historically, a trade deficit meant gold and other commodities were leaving your country. Today it means that US dollars are leaving.  As I've mentioned on this blog in the past, the effect is that less money is spent on domestic goods resulting in slower GDP growth.

The biggest single driver of our trade deficit is oil imports. Last year alone we imported about 6.9 million barrels of oil per day -- and thanks to Obama's energy policies, that's actually at a 25 year low. Today on Twitter, I decided to quantify that a little:

Even if oil does fall back to $50 a barrel, that's still $125 billion out of $500 billion, or a quarter of our deficit. At $100 a barrel, we'd be looking at 40% of the deficit.

The answer is simple. We don't need tariffs, we need to get off oil.

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