Trade Deficits and the Supply Chain Crisis – They Are Linked

Economists love to talk about trade deficits during TV interviews. Politicians bring up the topic on the campaign trail. Even economics professors spend a great deal of time teaching students about trade deficits and what they mean to taxpayers and investors alike. But how many of them now talk about trade deficits and their link to the current supply chain crisis?

To say that national economies are interdependent on global trade is to state the obvious. As proof, consider all the container ships that crisscross the world’s oceans every week. That says nothing of the data and services that are imported and exported in addition to physical goods. But with so much global trade taking place, it only takes one or two significant hiccups to cause a big problem.

Vigilant Global Trade Services is a Shaker Heights, Ohio company that provides global trade services to clients of all sizes. They say current international trade is being held up by ongoing supply chain issues. The demand is there. It is just that exporters cannot get goods to where they need to go fast enough. China is at the center of it all.

China Is a Manufacturing Giant

It is no secret that China has become a manufacturing giant over the last two decades. That is not by accident. Chinese leaders set out at the turn-of-the-century to become the world’s most dominant manufacturer of all types of goods. They have largely succeeded. A good portion of the world relies on Chinese manufacturing to supply cheap consumer goods.

As a result of U.S. dependence on Chinese manufacturing, we consistently run a trade deficit with them. We buy far more goods from China than we export to them. As a result, they truly control the equation. The inventory of so many goods bought in the U.S. depends on Chinese manufacturers supplying both parts and finished products.

China’s Influence on the Supply Chain

Acknowledging how much power China wields in terms of global manufacturing leads to an inevitable conclusion: the communist nation also exerts undue control over the supply chain. Our current supply chain crisis is living proof of that.

Chinese manufacturing plants were shuttered as a result of the coronavirus crisis. That is common knowledge. But more than two years later, manufacturing in that country still isn’t back to 100% capacity. Customers all over the world are left waiting on China’s manufacturers to reach pre-pandemic output. For some unknown reason, getting there has been laboriously slow.

Bring Manufacturing Back Home

The uncomfortable reality of the current situation is that our supply chain issues will continue as long as we rely too heavily on overseas trading partners. One way to address the problem is to bring manufacturing back home. Doing so would eliminate having to wait for container ships from overseas. It would also bring manufacturing jobs back to American soil.

Bringing manufacturing back home would also increase retail prices. There is the sticking point. Are consumers willing to pay higher prices in exchange for American jobs and less reliance on international shipping? If not, there is little we can do to stop being beholden to cheaper manufacturing in other countries. We really cannot have it both ways.

One of the reasons the U.S. has been so profoundly impacted by the supply chain crisis is our trade deficit status. As long as we continue importing more than we export, we will be at the mercy of exporting countries and their ability to meet our needs. If they cannot or will not, we can expect our shelves to remain somewhat bare.