Version User Scope of changes
Apr 29 2008, 11:31 AM EDT (current) Robert.Wang 2 words added, 2 words deleted
Apr 29 2008, 11:31 AM EDT Robert.Wang 1 word added, 1 word deleted

Changes

Key:  Additions   Deletions
Causes of the US Trade Deficits:
  • U.S. economic growth > economic growth of trading partners. This led to increased U.S. imports
  • Large trade deficit with China (~$202 billion in 2005) and with Japan (~83 billion in 2005). Imports > exports
  • Chinese yuan not appreciated relative to the dollar despite surplus because there is a fixed currency rate of the yuan to a basket of currencies and not merely the USD.
  • Rise in oil price
  • Declining U.S. savings rate
  • U.S. price levels are high due to higher labor costs- therefore imports of foreign goods are more attractive- thus the huge trade deficit

Implications of the US Trade Deficits:
  • By definition, a trade deficit means that the USA imports more than it exports, American consumers are able to consume outside of its PPC
  • While there's a better standard of living presently, it may mean less consumption in the future
  • Increase in US debt, which may lead to permanent debt, large sacrifices in the future, or a large portion of foreign ownership due to the debt
  • The accompanying surpluses on the capital and financial account have increased U.S. debt to the rest of the world and increased foreign ownership of assets intin ehthe United States.
  • Long-term impacts of record-high US trade deficits are largely unknown.
  • The long term effects of US trade deficits specifically with China have allowed China to control large quantities of U.S. assets, thus making itself an indispensable trading partner with the U.S.