Analysis of the Effect of Trade Balance on Manufacturing: Evidence from the United States

The relationship between a country’s manufacturing industry and its net trade carries a great deal of complexity and proves critical as the economy matures. Moreover, debates in public arenas oftentimes do not contribute in alleviating confusions or providing viable answers. This study attempts to empirically explore the nature of this relationship for the United States. Using a set of structural vector auto-regressions, it reveals that the development of the manufacturing sector is inhibited in the long run by worsening trade balances. However, this relationship does not appear significant. The implication of these findings weakens arguments singling out negative trade balances as driving forces behind the perceived woes of the US manufacturing sector.