Trade imbalance

Posted by Scriptaty | 8:19 PM

The latest data from the U.S. Department of Commerce revealed a $51.6 billion trade deficit in September, with $149 billion in imports and $97.5 billion in exports. That is down from June 2004’s record $55 billion trade deficit. Analysts at point out that trade with Pacific Rim countries accounts for roughly half of the deficit, with China being the largest component at 30 percent. Western Europe accounts for roughly 20 percent of the trade deficit.

Key figures in the Bush Administration believe that a weaker dollar can, in fact, aid America’s huge trade imbalance. A weaker dollar increases the price of imports for Americans, while decreasing the price of American exports abroad. The idea is that Americans will buy fewer imports and foreigners will buy more U.S. goods.

Callow says the weaker dollar “isn’t causing any great problems for the U.S. economy right now, and longerterm it should filter through to increase exports and reduce the imports bill.”

Another factor that has been weighing on the dollar is the rising trend of the current account deficit, which is estimated at about 5.4 percent of U.S. gross domestic product. In early December, official details of the U.S. third quarter current account deficit hadn’t been released, but forecasts call for a $171 billion reading.

“Some people think the U.S. has gone too far with the current account deficit,” says Ken Goldstein, economist at the Conference Board in New York.