Question

Should imports to the United States be curtailed by, say 20 percent to eliminate our trade deficit? What might happen if this were done?

Answer 1

In a world that is synchronized on a global scale, trade between nations is constant. Imports cannot be reduced by 20% in order to close the trade deficit.

Why it is not possible to reduce imports?

There are certain nations that will be impacted if the United States decides to cut imports by 20%.

As a result, imports from the United States will likewise be restricted in other nations.

In other words, the United States may experience a fall in exports while attempting to reduce imports. The overall impact on trade imbalances could be minimal.

The trade conflict between the United States and China is a good illustration. China responded to the United States taxes on its imports by imposing its own levies. As a result, both countries suffered.

As a result, there is no quick fix for decreasing trade deficits. A more delicate balance between consumption and production must be achieved over time.

The manufacturing industries must have favorable policies and incentives to encourage consumer demand for locally made items.

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Answer 2

It is not possible to curtail imports by 20% in order to eliminate trade deficits. The reasons are as follows -

In a globally synchronized world, there is continuous trade between countries. If the United States decides to reduce imports by 20%, there will be countries that will be impacted by this decision. The resulting action will be that other countries will also curtail U.S. imports. In other words, while trying to lower imports, United States can witness decline in exports. The net result on trade deficits might be insignificant. A good example is the trade war between the United States and China. As the U.S. imposed tariffs on imports from China, the Asian country also retaliated with tariffs. Both countries suffered as a result.

The import of goods caters to consumption demand in the United States. When import of certain goods are banned, there is scarcity of the good(s). This can translate into high consumer price inflation and impact a consumption driven economy.

Therefore, there is no immediate solution to reducing trade deficits. Over time, there has to be a finer balance between production and consumption. There needs to be conducive policies and benefits for the manufacturing sectors to drive consumption demand for locally produced goods.