The American Trade Deficit

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According to U.S. Department of Commerce, trade deficit in United States fell to $711.6 billion in the year 2007, a decline of $46.9 billion since 2006.

Falling trade deficit in United States was marked due to drops in imports of consumer goods, autos and vehicle parts. U.S. merchandise trade deficit, which includes only manufactured goods and commodities, fell to $815.6 billion in the year 2007.

US Trade deficit is presently running through an all time low. The trade deficit hit a rock bottom in February 2005 at $61 billion, and the situation only worsened from then on. The deficit coincided with the lowering of the evaluation of the dollar and a record increase of America’s debt to foreign creditors. The worst possibility of such high trade deficit in the US market is probably the panic sell of American debts by foreign holders, simultaneously leading to a record sell-off in the stock market.

A number of factors, which have developed over a prolonged period of time, have contributed towards this deficit. A rise in the demand for foreign petroleum is considered to be one of the greatest reasons behind the rising imbalance between the import and the export balance in the US. There has been about 10% increase in the rates of clothing and textiles goods from China. It has been another major factor behind increasing import expenditures. Other imports that recorded unprecedented growth were autos and auto parts, consumer goods, and industrial supplies and materials.

A region-wise study of trade distribution of the US in the international market suggests maximum deficit, which was incurred in the Asian region. This is because of a drastically imbalanced trade flow with the Asian market. The disparity of the financial culture and economic profiles of the various Asian countries and of the US is largely responsible for this imbalance. Though each Asian country has its own way of balancing trade, yet the general pattern adhere to the following lines:

  • A drastic under-valuation of exchange rates to increase their competitiveness.
  • Increase of exports through state promotion and control of critical industries
  • Restriction of imports

Ultimately, the trade deficit boiled down to US’ failure in maintaining international competitiveness. The reasons behind is failure can be accounted to the heavy dependence of the US economy on commodity exports, coupled with a continued decline in employment in the high wage jobs of the technological sector, as well as reduced production and output.

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