Since World War II, the United States has supported agreements among nations to eliminate barriers to international trade and investment. Despite occasional resistance, that support has generally reflected a public consensus about the benefits to be gained from free trade. Since long before the war, the United States had run an almost unbroken string of trade surpluses--that is, an excess of exports over imports--and the war damaged or destroyed much of the most significant international competition for U.S. industry. Consequently, before 1970, U.S. industry seemed to have little to fear and much to gain from free trade.
After 1970, however, the almost unbroken string of trade surpluses turned into one of trade deficits, and in the 1980s and 1990s, those deficits grew quite large. Opponents of freer U.S. trade point to the deficits as evidence of mistaken U.S. and unfair foreign trade policies. Many are concerned that the deficits cause a number of economic ills, such as unemployment and slower economic growth, and they therefore support import restrictions and other trade policies intended to reduce or eliminate the deficits.
In fact, however, either U.S. or foreign trade policies do not cause the deficits. Rather, they are determined by the balances between saving and investment in the United States and in other countries and the effects of those balances on international flows of capital. The major changes in the U.S. trade deficit since 1970 can be traced to three primary sources: a long decline in saving as a share of gross domestic product (GDP) that began in the mid-1950s and accelerated in the 1980s, fluctuations in the business cycle, and relatively attractive investment opportunities in the United States in the 1990s. (Causes and Consequences of the Trade Deficit, 2000)..........
