In recent times, the persistent and unexpected growth of the US trade deficit is causing some unavoidable risks to the US economic growth and global financial system as well. Rising oil prices have worsened the situation. This article analyzes the severity of the present US trade imbalance and the economic strain it has resulted in.
"Higher monthly trade deficit numbers pour more fuel on the fire burning under this administration to really do something on trade policy, especially when it comes to trade with China."
The serious and mounting imbalance in the US current account and the simultaneous decline of the dollar in the recent times have not only posed a great threat to the continued prosperity and stability to the US economy, but has also been a matter of major concern for the global economy and the global leaders. Put differently, the current account which is a broad measure of the trade and the financial flows in and out of a country reflects a real picture of a country's economic health. The dramatic widening of the US current account deficit in the last three decades has proved the Americans' continued trend towards spending far more on imports than their earnings from exports. To cover the huge difference between the nation's aggregate income and aggregate expenditure, the US is constantly borrowing from abroad which indicates that the country has become world's biggest debtor with a current account deficit now running close to 7% of its GDP.
Based on the US commerce department's report released in February 2007, the nation's trade deficit set a fifth consecutive record in 2006 and at the end of the year, a huge imbalance increased more than expectation with the gap rising to a record $763.6 bn. So far this year, the overall deficit is running at an annual rate of $722.6 bn, though slightly below the deficit last year. But it still presents a key risk to the US economy. In March 2007, the deficit widened as higher crude oil shipments drove the biggest increase in imports for more than four years. According to a recent report, the gap in goods and services trade rose to $63.9 bn in March, up 10.4% from February. Growth of the overall economy, as measured by the GDP, slowed to an uninspiring rate of just 1.3% in the January-March quarter. The deficit with Canada, America's biggest trading partner, increased by 21.7% to $5.7 bn in March while the deficit with the European Union increased by 21.3% to $7.7 bn even though US exports to both areas set records. Import of goods and services rose 4.5% in March, the biggest increase since November 2002, to $190.1 bn. Import of industrial supplies, including petroleum, rose to $49.1 bn. Import of petroleum products rose to a seasonally adjusted $24.6 bn from $20.9 bn a month earlier. |
