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Federal Spending and the Trade Deficit

Posted By Bryan Riley On July 1, 2011 @ 11:11 am In Economics | Comments Disabled

In 1987, President Ronald Reagan explained [1] the relationship between federal spending [2] and the U.S. trade deficit:

“Here in the United States, we must restrain government spending. Our trade deficit in goods and services reflects that, over the past several years, we have spent more than we have produced—and we have spent too much because of the profligacy of the federal government. As the Congress reviews my proposed 1988 budget, it should remember that a vote for more government spending is a vote against correcting our trade deficit.”

Today, the government released data [3] that illustrate President Reagan’s point. The federal government sold $654 billion in Treasury securities to foreign citizens and governments in 2010 to finance its excessive spending.


If the government did not have to sell so many Treasury bonds to foreign buyers, they would have more dollars available to spend on U.S. exports and to invest in the U.S. private sector. This problem is nothing new. As ABC News reported [5] in a 1985 story on U.S. trade policy (above):

The most basic problem is agreed to be the budget deficit. But nobody here seems able to do anything about that.

Reagan was right. Instead of blaming other countries [6] for the trade deficit, politicians should reverse the big-spending policies that helped create it.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/07/01/federal-spending-and-the-trade-deficit/

URLs in this post:

[1] Reagan explained: http://fraser.stlouisfed.org/publications/erp/issue/1592/download/6022/ER_1987.pdf

[2] federal spending: http://heritage.org/Issues/Budget-and-Spending/Federal-Budget

[3] released data: http://www.bea.gov/newsreleases/international/intinv/2011/xls/intinv10.xls

[4] Image: http://www.foundry.org/wp-content/uploads/special-foreign-spending-in-US.jpg

[5] reported: http://www.youtube.com/watch?v=uI0DLdLwovU

[6] other countries: http://www.defazio.house.gov/index.php?option=com_content&task=view&id=600

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