Question

how and under what conditions a sudden increase in the U.S. federal government’s budget deficit can lead ultimately to a significant loss of competitiveness of the U.S. export-oriented manufacturing sector and a significant loss of export-oriented blue collar manufacturing jobs and a shift towards import-reliant economic activity

Answer 1

A sudden increase in the U.S. federal government's budget deficit can lead ultimately to a significant loss of competitiveness of the U.S. export oriented manufacturing sector if the government reduces its spending on technological growth, research and development, infrastructure etc.All this will reduce the competitiveness of the domestic industries. Also increase in taxes by the government to cover their deficit will hurt the industrial sector both by decrease in demand and also by decline in production. Fall in the production will also lead decline in labor demand and fall in the wage rate and thus unemployment rises in the economy and there is significant loss of export oriented blue collar manufacturing jobs. This will induce the consumers to shift towards import reliant economic activity where imports rises and exports falls and thus the country experiences trade deficit.