South-Western College Publishing - Economics  
U.S. Trade Deficit Highest Ever
Subject Trade Deficit
Topic International Trade
Key Words

Imports, Exports, and Trade Imbalance

News Story

The United States foreign trade deficit could exceed $600 billion for 2004 if the current trend continues. The nation’s trade deficit jumped 7 percent over the $56 billion gap posted in October to the highest-ever-recorded deficit of $60.3 billion in November, 2004.

Bush administration Treasury Secretary John Snow explained the situation as a sign of strength in the American economy. “The economy is growing, expanding, creating jobs and disposable income and that shows up in the demand for imports,” he said.

Mr. Snow blames wealthy trading partners of the U.S. for not buying enough American products. He thinks these wealthy trading partners need to grow their economies faster and buy more U.S.-made goods. This, he claims, will help the United States out of its current trade imbalance.

Economists tend to agree that part of the problem is on the export side, as reflected in low overseas demand for American products, but as long as American consumers continue to buy foreign imports so voraciously, the problem will persist. “These numbers are not good,” said Drew Matus, senior economist for Lehman Brothers. “They suggest that a lot of the pickup in consumer spending we saw was unfortunately not benefiting domestic producers, but rather trickling out to economies elsewhere in the world.”

Anthony Gooch, spokesman for the European Union in Washington, said there were many factors at play. “There are many reasons why the United States is running its trade deficit,” he said, “but if it produces American goods of quality and at a competitive price, they will sell themselves. They always have and they always will.” America exports a lot of capital goods like commercial aircraft and semiconductors. Other exports include food and beverages, household appliances, industrial supplies, weapons, information technology and biotechnology.

On the import side, America’s largest import is oil, but Americans are also buying low-cost toys, household goods, clothing, jewelry, and premium wine. Lehman Brothers’ Mr. Matus suggests two things that need to happen to improve the trade imbalance. “One of two things has to happen: Either the dollar has to fall more and make things [exports from other nations] more expensive to [U.S.] consumers, or overseas demand [for U.S. made products] has to pick up sharply,” he said.

1. Define a trade deficit. Is it a “real number” in that it has real consequences for ordinary people?
2. With the trade deficit growing, do you favor protecting American manufacturers from foreign imports? Why or why not?
3. Explain why the falling dollar would make imports more expensive.
Source Elizabeth Becker, “ U.S. Trade Deficit Hit Highest Figure Ever in November”, The New York Times Online, January 12, 2005 and Elizabeth Becker, “ U.S. Trade Deficit Rises to New High”, The New York Times Online, January 13, 2005.

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