April 14th 2005
US Trade deficit worsens
At $61 Billion, the United States’ trade deficit has set yet another record. It was expected that as the USD depreciated, and the economy reached a more mature stage in the current economic cycle, that this deficit would narrow. There appears to be no end to the deficit problem in sight. Asian economies, with their cheap currencies and exports, deserve much of the blame. US fiscal irresponsibility is also culpable, as the current administration is not treating this problem with the gravity it merits. As usual, the pessimists have been quick to voice their opinions on the widening deficit. They argue that the deficit is not sustainable in the long run. At some point, Asian economies will decide they no longer wish to finance the deficit, and a day of reckoning will occur. The IMF agrees. If the imbalance is not soon addressed, the US may be forced to raise interest rates at a quicker-than-expected pace, stunting economic growth. The Financial Times reports:
This would probably prompt a similarly abrupt rise in US interest rates, which could kill off the US housing and consumption boom and explode over- leveraged financial institutions, with severe global consequences.
Read More: Imbalances Worsen
April 18th, 2005 at 8:43 pm
Not all Asian currencies are kept artificially cheap except Chinese Yuan. Yuan is at least 15% cheap than its actual value and Yuan’s deflated value does hurt US and plays a significant role in widening its trade deficit. Last year, US had $162 billion deficit with China out of its total $666 billion trade deficit. If a trading partner responsible for 25% of trade deficit is going to peg the currency, no matter how much USD depreciates, it is not going to reduce the trade deficit by much. And yes, don’t forget the surging oil prices, which also contribute a lot to the current trade deficit.
October 5th, 2005 at 5:58 pm
Let’s not forget the trade deficit with Europe which is over 130 billion and climbing. We also have large trade deficits with Canada, Mexico, Japan, Saudi Arabia and others.
The U.S. is nolonger a manufacturing country and continues to call behind.
April 21st, 2006 at 5:37 pm
The dollar collapse is a given.
July 16th, 2006 at 5:04 pm
I am told that some economists see the U.S. Trade Deficit hitting 2 Trillion in 10 years. This seems unreal. We had a trade surplus in 1974.
Amazing if true.