Sometimes, a rising trade deficit is a good thing, and in March the U.S. economy hit a 15-month trade deficit high. That may be one reason why investors pushed stocks and exchange traded funds (ETFs) up over 1 percent in Wednesday’s trading.
Typically, a large trade deficit is not favorable since it means we are giving money away faster than bringing it in. However, in this economic climate, the larger trade gap indicates a more robust demand for imports, which is a positive sign for the U.S. and global economic outlook, According to Veronica Smith of AFP.A deficit of $40.4 billion is what we are looking at in March.
Specifically, exports rose 3.2% in March to $147.9 billion, while imports rose 3.1% to $188.3 billion. The good news within the good news is that “out of the 5.6-billion-dollar increase in imports, 3.6 billion came from a pickup in industrial supplies and materials demand,” says Jeffrey Rosen, an analyst at Briefing.com.
But, a rising trade deficit in the years ahead will not bode well for the economic recovery in the U.S., says Joel Naroff of Naroff Economic Advisors. On top of the U.S.’s massive debt, a rising trade deficit will only compound the problem of giving money away faster than bringing it in. Imagine giving away 50 cents for every dollar you earned. That’s not a favorable financial position to be in.