Trade Deficits and Why They Matter: What Importers and Exporters Should Know

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Whether you are an exporter, importer, or work in the financial sector, the word trade deficit comes up enough to garner attention. During the Trump administration, this was a central talking point, and it certainly stirred debate from both sides. People that never concerned themselves with the trade gap suddenly found themselves arguing about it. As customs brokers, we operate in the international trade sphere day-in and day-out, this number is relevant to what we do and the importers and exporters we deal with.  So what exactly is a trade deficit and how does it impact the everyday back and forth of international trade?

The international market is interconnected, and the downfalls of one country will inevitably affect another. 

What do We Mean By a Trade Deficit? 

Whenever a nation has an import surplus— meaning they import more than they export—a trade deficit emerges. The Council on Foreign Relations, for example, cites the following number: in 2018, the U.S. exported  $2.500 trillion in goods and services while it imported $3.121 trillion. This means that there was a trade deficit of $621 billion.  

As part of managing the overall U.S. economy, the idea is to try and find a balance between these numbers. The trade balance makes up the nation’s economic relationship with other countries, known as the balance of payments. 

What is the balance of payments? 

This balance of payments, as defined by the Council of Foreign Relations, is that it “consists of the trade balance, or current amount, and the financial accounts or the measures of U.S. purchase and sales of foreign assets.”

So a trade deficit is mostly caused by an imbalance between the rate of investment and the rate of savings of any given country. To reduce the U.S. deficit will in turn mean that Americans should save more or invest less and smaller trade deficits might benefit smaller U.S. exporters that compete with importers. At the same time, however, smaller trade deficits might work against regular Americans as they have less choice for consumption domestically and fewer opportunities for investment that fuel further domestic growth. 

What Influences the Size of the Trade Deficit? 

Gary Clyde Hufbauer and Zhiyao Lu of the Peterson Institute for International Economics pointed out that the trade deficit is impacted by several working forces: 

  • Government spending: When the government is throwing cash around and increasing its spending, it decreases the national savings rate and raises the deficit. 
  • Dollar rate exchange: When the dollar is stronger, the American consumer can buy foreign products more easily.  
  • The growth of the U.S. economy: A growing U.S. economy means that consumers have more disposable income to pursue buying goods from abroad. 

The Trade Deficit Trends

Because the trade deficit numbers are always a balancing act, there is a constant pendulum shift in the numbers. Changing administrations and federal policies will also have a considerable impact on these numbers, so here’s what the last few years look like:

Trade deficit:

  • In 2017, $568 billion 
  • In 2018, $621 billion
  • In 2019, $616.8 billion
  • In 2020, $678.7 billion

Trade Deficit Number of 2021

In August of 2021, Bloomberg News published a report about the U.S. trade deficit and how it had widened to a record $75.7 billion for the month. The number—which indicates the trade gap between goods and services— grew to 6.7% to $75.7 billion. The report seems to indicate that there is a steady surge in consumer demand.

Why Does the Trade Deficit Matter?

Well, it depends on your industry. If you are in the import or export business, the trade deficit will tell you something about the state of the economy and what way the pendulum is swinging. The trade deficit also indicates how the U.S. is doing in terms of some of its largest imports and exports. In 2020, for example, the U.S. imported about $116.4 billion of petroleum, the lowest amount since 2002. 

How the trade deficit affects the U.S. economy is argued about by economists and industry specialists. Some argue that an increased deficit for a prolonged period means that the country is operating with debt and it makes the economy unstable. Other effects of a continuing large deficit mean that U.S. companies may not be producing that many goods and the nation become overly dependent on others for these goods. When that happens for long enough, the U.S. industries lose their competitive edge to foreign companies and slowly discourage domestic jobs. 

Connect with a Customs Brokerage That Keeps You on Top of Things 

As a customs broker, Cordova stays on top of all relevant international trade news. Whether it has to do with imports, exports, rising prices, worldwide pandemics, we got you covered. Part of our jobs is to keep our clients in compliance with ever-changing U.S. trade regulations, tariffs, and more. 

Ready to keep your international business in compliance with a professional brokerage company? Call Cordova today and learn more. 

The Many Roles of a Customs Brokerage: Importing, Paperwork, & Clearance

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A customs broker is a type of middleman. They are facilitators. Experts on laws and regulations that are ever-changing and shifting. A customs broker represents the interests of the United States as it relates to the importation and exportation of goods across international waters and borders. Here at Cordova Customs Brokers, we thought we’d take a moment to explain the day in the life of a customs broker, what we do, what we’re responsible for, and why it’s important to go with the one you trust. 

To put it simply, a customs broker works with importers and exporters of goods. Everything that comes in through this country’s borders must be documented and follow what we call compliance. We get shipments cleared through customs and other agencies that might need to get involved with shipments. There are thousands of shipments that come in each day, as the relative size of imports has grown from 10% of GDP in the early 1990s to 15% in 2017. 

Why Do Importers Need a Customs Broker?

Bringing goods into the United States, or any other country might seem simple on its face. In reality, each country has its own set of rules and regulations when it comes to bringing in goods from other countries. As it is stated by Customs, “When a normal ‘entry of merchandise’ is made under the provisions of 19 U.S.C the required information and documentation is required to be filled or electronically transmitted by the “importer of record.”

As customs brokers, we work for the ‘importer of record.’ They are our clients and we represent their interests in successfully getting their goods into the United States in order to do business. The United States has regulations as well and it can make importing goods a little more complicated. A customs broker navigates the complicated process for you, getting through the paperwork, compliance, and dealing with various agencies on your behalf. 

These shipments include everything from crabmeat to squeaky toys for dogs, children’s toys, shrimp, and more. 

The process of customs brokerage existed as early as the 1850s when an importer or consignee endorsed the bill of lading over to a tradesman. These tradesmen were called ‘customhouse brokers.’ In the beginning, these brokers would sign the merchandise with their name instead of the original consignee but it led to many problems. This issue was resolved with the Customs Regulations of 1857 and the beginning of what were to be many new changes to the way we do imports. 

What is the Process of Importation like? 

It depends on whether shipments are coming through by air, water, or land. As a general overview, however, the process is relatively similar. When we work with an importer, we get the information we need and input it into specialized software that will sort through the information and send it to Customs and Border Protection. So, for example, if there is a shipment coming in, we do the paperwork and preliminary clearance before they get to the designated terminal. If the product needs to be approved by another agency like the FDA, this needs to be done as well. When the shipment comes in, it will be cleared in their computer system and the goods will be good to enter and be released to whoever is going to pick them up from there. 

Today, it is all done electrically. Technology has certainly given our job a major advantage and speeded up the process of importation in the last couple of decades. 

On any given day, a customs broker that works with importers will see any number of different types of goods. Shipments will come in carrying food like shrimp, crabmeat, and other delicacies, toys from cheap toys to more commercially popular ones, clothes, and more. Many shipments come in from China, as one of our biggest importers. One interesting tidbit here is that shrimp is actually a big import. Thousands of people in the United States consume a lot of shrimp each day. 

What is the advantage of working with a customs broker? 

As we mentioned earlier, we act as a kind of middleman that facilitates the process between various entities and agencies. Most importers are business people who want to keep to the business they are in and are not interested in being backlogged with a bunch of paperwork and confusing regulations. This is where we come in. We take care of all the legal stuff so their shipments will have no problems at the border, so they will be cleared, and ready to continue with the business of making money. 

We take care of:

  • Clearing goods through customs 
  • Making sure those goods reach their destinations
  • Calculate duty or tariff payments owed
  • Compile and fill out necessary documentation like invoices, certificates, and cargo-control documents
  • Keep on top of changes in export or import laws and regulations

Are You an Importer Looking to Bring Goods Into the U.S? Call a Trusted Customs Broker

Here at Cordova Customs Brokerage, we have been helping importers do business in the United States for many years. Our brokers are always up to speed with new regulations and changes—as they happen often—and abreast of all necessary compliance guidelines. Call us today for more information.