Examining the United States Balance of Trade

This paper aims to explain the United States balance of trade—an integral component of the domestic economy and a political focus as of late. The balance of trade is investigated using an Ordinary Least Squares time-series regression model using the following explanatory variables: the trade-weighted US Dollar index, the unemployment rate, the US-Mexico-Canada Agreement (USMCA), and China’s Most Favored Nation (MFN) status. Regression results indicated statistical significance for all four of the explanatory variables at the 1% level, though the trade-weighted US Dollar index had a positive coefficient with the dependent variable, contrary to what economic theory would suggest. Newey-West standard error corrections were made to account for autocorrelation. The model produced strong results which might illuminate the future effects of a shift toward protectionist trade policy.