Trade Deficit Decrease May Reflect Weak Economy

Bryan Riley /

Today the U.S. Bureau of Economic Analysis announced that the trade deficit for July fell by $6.8 billion. Exports increased by $6.2 billion and imports decreased by $500 million.

Historically, decreasing trade deficits are often a sign of economic weakness. When workers are unemployed, they have less money to spend. As a result, fewer goods are imported and the trade deficit may decrease.

For example, the U.S. trade deficit fell by more than 50 percent from 2007 to 2009 as our economy weakened and unemployment increased.

The amount of freedom available to Americans is a better gauge of U.S. economic strength than the size of the trade deficit. Unfortunately, Americans have less economic freedom today than when President Obama was elected, based on data in the Index of Economic Freedom.

Prospects for renewed economic growth will be much stronger if policymakers spend less time worrying about the size of the trade deficit and more time working to make the United States a world leader in economic freedom.