The Best Way To Balance The U.S. Trade Deficit Might Be Just South Of The Border

mexico sign

Photo: Flickr quinn.anna

Earlier this week, the Department of Commerce published international trade figures for May.The U.S. trade deficit, with the rest of the world, was the highest its been in three years, surpassing everyone’s expectations.

The deficit totaled $50.2 billion (The actual number, to emphasise the zeros: $50,200,000,000), with exports totaling $174.9 billion and imports a whopping $225.1 billion. 

The trade imbalance we have with countries around the world isn’t all bad news because it means American companies have money to invest. Although our purchasing power appears to be backup, it’s fair to say anyone would rather make more money than spend it, which is why it’s important to attempt to balance the U.S. trade deficit or even miraculously attempt to have a trade surplus.

As talk continues about the best way to kickstart the economy, one of the best ways of creating jobs is by selling American products and services to other countries.

One of the largest opportunities for American companies to expand their market is by supplying the maquiladoras, or Mexican factories, just a few miles South of the border.

Maquiladoras are foreign owned companies that have moved their operations to Mexico in order to take advantage of the lower manufacturing costs. Many of the factories in Mexico are American, but include companies from around the world in all types of industries.

Maquiladoras import most of the raw materials they use and export a finished product. The low hanging fruit for American companies to expand their markets is to supply the maquiladoras with products and services such as, metal fabrication, metal stamping, plastic injection, bolts and fasteners, packaging materials and much more.

Another opportunity to increase exports in the future comes as a result of an agreement between the U.S. and Mexico last week to finally allow Mexican trucks to travel on U.S. roads in exchange to remove tariffs on American agricultural products shipped to Mexico.

The agreement was part of the NAFTA deal and supposed to go in effect years ago, but was delayed due to safety concerns of Mexican trucks on U.S. highways. American agricultural products will now be more affordable in Mexico, which should have a significant impact on the deficit.

Finally, not surprisingly, the country the United States continues to have the largest deficit with month over month is China. This past May, the U.S. trade deficit with China totaled $25 billion ($32.8 billion worth of imports and only $7.8 billion in exports). Everyone typically points out that the Chinese have an unfair advantage because their currency is held artificially low or that their government provides subsidies for companies that export their products. The bottom line is China will continue to do what is in their best interest, and if we are going to get serious about evening out the tremendous imbalance in our business relationship, we must set our own rules as well.

The United States can place tariffs on Chinese goods coming from companies that receive subsidies from the government, or until we believe their currency is fairly valued. Just like the Chinese government made it nearly impossible for Google to do business in their country, we can set our own barriers to prevent Chinese companies from making money in the United States. Chinese products are not irreplaceable, and with the rising cost of fuel and shipping costs, it’s becoming much more attractive for American companies to do business with countries much closer anyway.

The United States must establish a fair working relationship with countries around the world if we hope to sell American products overseas. In order to balance the trade deficit, however, the government must take steps to make sure American companies aren’t at a disadvantage.

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