As other countries became more successful, U.S. workers in exporting industries worried that other countries were flooding the United States with their goods while keeping their own markets closed. American workers also charged that foreign countries were unfairly helping their exporters win markets in third countries by subsidizing select industries such as steel and by designing trade policies that unduly promoted exports over imports. Adding to American labor's anxiety, many U.S.-based multinational firms began moving production facilities overseas during this period. Technological advances made such moves more practical, and some firms sought to take advantage of lower foreign wages, fewer regulatory hurdles, and other conditions that would reduce production costs.
An even bigger factor leading to the ballooning U.S. trade deficit, however, was a sharp rise in the value of the dollar. Between 1980 and 1985, the dollar's value rose some 40 percent in relation to the currencies of major U.S. trading partners. This made U.S. exports relatively more expensive and foreign imports into the United States relatively cheaper. Why did the dollar appreciate? The answer can be found in the U.S. recovery from the global recession of 1981-1982 and in huge U.S. federal budget deficits, which acted together to create a significant demand in the United States for foreign capital. That, in turn, drove up U.S. interest rates and led to the rise of the dollar.
Next Article: History of the U.S. Trade Deficit
This article is adapted from the book "Outline of the U.S. Economy" by Conte and Carr and has been adapted with permission from the U.S. Department of State.