Why Were Industrial and Agricultural Surpluses a Problem for the U.S. Economy?

Why Were Industrial and Agricultural Surpluses a Problem for the U.S. Economy?

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The surplus is defined as an excess of something, or more specifically an amount which remains once the demand for that something has been met. An example of a surplus in everyday life can be all the money that has been left over once you have paid all your living costs for the month. As having excess money does not seem like a problem, the question is why were industrial and agricultural surpluses a problem for the U.S. Economy?

Industrial and Agricultural surpluses are a problem for the U.S. Economy because they often go to waste as the U.S. cannot find a buyer for all the surpluses it produces.

Let’s say you are a farmer and you are growing a certain crop and end up with a surplus for the year. What you can do is:

  • Keep some of the produce for yourself and your family for consumption so it does not go to waste
  • Or try to sell some of it in order to gain more profit which could be used to buy new tools to help better your production. 

However, does this always work as easily?

U.S. Industrial Surplus

To explain what an industrial surplus is, you need to know what industrial goods are. They are materials used in the production of other goods and range anywhere from machinery, manufacturing plants, raw materials, to any other materials used by industries or firms.

Industrial surplus affects all of the companies who deal with stock – when a company does an inventory and they surpass a number of items set to keep in stock, a surplus is created. Industrial surplus does not necessarily have to be just products that a company produces, surplus can also be created when a company orders too much inventory and does not sell a certain expected number so everything that is left is considered a surplus.

All of the surpluses from companies can be purchased by other companies who deal in surpluses and then sell it either to other businesses or directly to customers.

One of the great examples of companies who deal with selling consumer goods or surplus to customers who need it is TJ Maxx. Consumer goods are different from industrial products as they are considered finished products that are sold to and used by consumers.

TJ Maxx sells a variety of products ranging from beauty and fashion to home goods. Those products are bought as surpluses from different companies and are later resold in TJ Maxx stores for a cheaper price.

U.S agricultural surplus

An agricultural example of a surplus is when there is crop remaining after all crop orders have been filled for the following year.

The value of U.S. agricultural exports declined in 2015, particularly among major bulk exports. Meanwhile, U.S. imports grew, but at a slower pace than in previous years. The leading U.S. exports are grains/feeds, soybeans, livestock products, and horticultural products. The largest U.S. imports are horticultural and tropical products.

In 2019 it was reported that U.S. trade surplus has been the smallest since 2006.

U.S. agricultural exports were valued at approximately $140 billion in 2018, whilst imports grew by 6 percent and reached $129 billion in 2018. This created a trade surplus of $10.9 billion in 2018, making it the smallest surplus since 2006.

Next, you can see a chart which details the agricultural imports for the US:

The chart shows that most of the U.S. agricultural imports in the span of 18 years have grown and almost 50 percent of all the imports are horticultural products like fruits and vegetables, wine, nursery stock, wine. Sugar and tropical products as coffee and cocoa have grown at a steady pace but still comprise around 18 percent of imports. Except for the imports of horticultural products, livestock products as well as oilseeds and oilseed product imports have grown significantly over the 18-year span.

On the other hand, there are the U.S. agricultural exports which can be seen in next chart:

Out of select agricultural products, for example, over 75 percent of the total volume of the U.S. production of cotton was exported between the years of 2011 and 2013. Wheat, rice and tree nuts were all exported in more than 50 percent of the total volume of the U.S. production.

Why Were Industrial and Agricultural Surpluses a Problem for the U.S. Economy?

What happens if there are too many surpluses from too many sources?

Well, the answer is quite simple. If all the surpluses cannot be utilized within the country, sold to the country or someone within the country or if the surpluses cannot be exported they will simply go to waste.

As for the industrial surplus, it can be hard to deal with because it is most likely you will need a company who deals with surpluses

If you are not a company who deals with selling surpluses, but rather just ended up with surpluses, you are in a bit of trouble as selling industrial equipment can be quite daunting. Doing it on your own could prove to be difficult and challenging to pull off. You will need to look for a company who deals with selling surpluses which will not always necessarily maximize the potential return of used industrial parts and equipment. Not only is it more costly as you have to pay somebody to sell these surpluses for you, but there is also no guarantee you will settle your investments and at least be at a 0.  

Although in 2018 the U.S. did have the smallest surplus since 2006, the question remains if that surplus of $10.9 billion is a small surplus?

Definitely not. There are two problems such surpluses cause:

For the US

First problem is for the economy of the country that produces the surplus, in this case the US. Somebody has to produce all of those surpluses. That somebody are the U.S. farmers who have put their time and money into producing a certain number of products. All of the products that cannot be sold and have not been utilized represent a loss for the farmer. Of course, it is not one farmer who accumulated the $10.9 billion surplus but it is rather thousands of farmers, some who have lost more money and some who have lost less.

That surplus of $10.9 billion, which has been the smallest, is still a huge amount of money which the farmers cannot get back and which the U.S. is not able to repay.

For countries that do not have enough produce

The second problem occurs with countries, usually those of the third world, who do not have enough produce to feed their people. Be it either because they are unable to produce in their own country due to unfavorable soil or because they are unable to import produce because of insufficient funds, those countries could do with a $10.9 billion surplus.

To understand the problem of a surplus fully, you need to know a little bit more about trade deficits.

Trade deficit

A trade deficit is measured by the sum of a country’s imports, or rather the products that one country buys from other countries, and by the sum of a country’s exports, or rather the products that one country sells to other countries. Countries can import and export, or trade in both, manufactured goods and services.

IMPORTS$739 billion$721 billion$678 billion
EXPORTS$559 billion$360 billion$278 billion
TOTAL TRADE$739 billion$721 billion$678 billion

As seen in the table below, The U.S. imported more manufactured goods and services than it did export with three of its top trading partners in 2018.

So, overall the U.S. is in a trade deficit as it imports more than it exports. Opposite of a trade deficit is a country that exports more than it imports. The U.S. runs on trade deficits with certain trade partners and runs on surpluses with the others, but overall, in 2018 has a $621 billion deficit.

Although the U.S. is overall in a trade deficit, not all deficits are the same and depend on different services and manufactured products. For example, as the U.S. has a $250 billion surplus in services but it is its goods deficit that influences the whole balance to show as a deficit.

What has been agreed on, however, within the scientific community is that neither a surplus nor a deficit are within themselves a good or a bad thing.

The only thing that can be learned from reading certain surpluses or deficits is how a country operates and what its priorities are rather than if its economy is doing poorly or well.

This brings the U.S. to the conclusion that while a trade deficit is not necessarily harmful, you have absolutely no guarantee that having a surplus will bring robust economic health. The sum is that whether you’re importing or exporting, you are not losing but have to find a balance of what works the best for your economy and people.

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