America's trade deficit with the rest of the world unexpectedly widened to $50 billion in June — the highest it has been since the economic crisis began in late 2008 — causing many analysts to fear that the U.S. recovery may be sputtering out. "It just seems like the economy is losing momentum as the year progresses," said Kevin Cummins, an economist at UBS. (Watch a discussion about the U.S. government's opposing view.) Here, 4 theories on why the trade deficit surged:
1. China's unfair advantage: The trade imbalance worsened with a lot of partners, say the editors of The Economist, but the most striking change was the $4 billion rise in imports from China from May to June. Beijing needs to keep its economy growing, so it can't afford to adjust its undervalued currency — meaning that American money, and jobs, will continue flowing to China. As long as the yuan remains artificially cheap, the U.S. recovery will look "ever weaker."
"A perfect storm"
2. Our efforts to stimulate the economy are making a bad situation worse: With unemployment hovering near double digits, says Tim Duy at Seeking Alpha, it's pretty obvious that American industry isn't operating at its full potential. And the thing that makes matters worse is that, especially in an economic crunch, everything we do to stimulate domestic consumption is likely to make our import bill — and therefore our trade imbalance — even bigger, as comparison shoppers pick the cheapest goods, which so often come from overseas.
"The exploding U.S. trade deficit"
3. Europe isn't helping us: President Obama had hoped we could close the trade deficit, and lift our economy out of the "doldrums," by doubling our exports, says Frank James in NPR. From the start, that struck some critics as "overly optimistic." But the June numbers prove that our most "important trade partners" — that is, European countries — remain mired in an economic slump. It's now clear that "Americans shouldn't count on exporting their way into a more robust recovery."
"U.S. June trade gap expands to 21-month high"
4. U.S. factories were bargain hunting: Many U.S. producers scrambled in June to buy up cheap steel and other goods from China, says Diane Swonk at Money Watch. The buying spree was prompted by China's recent elimination of a tax credit for exporting industries. Now that the American buyers have stocked up and the Chinese subsidies are gone, things should improve.
"U.S. trade deficit surges"
THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER
- Why Pakistan won't hunt down the terrorists within its borders
- Sorry, GOP, tax cuts don't pay for themselves
- How academia's liberal bias is killing social science
- How to be the most productive person in your office — and still get home by 5:30 p.m.
- Pope Francis' American problem
- 43 TV shows to watch in 2014
- Are there dogs in heaven? Let's hope not.
- Diagnosing the Home Alone burglars' injuries: A professional weighs in
- 10 things you need to know today: December 19, 2014
- Hey, bosses: Stop giving bonuses to your employees
Subscribe to the Week