Question

The U.S. has consistently run balance-of-payments deficits for the last several years. Should this be concerning to the U.S., why or why not? What actions could the U.S. take concerning their balance-of-payment deficit?

Answer 1

US trade deficit is close to the $621 billion. US goods trade deficit is larger than its overall trade deficit. Service exports improve the condition of trade deficit marginally. US deficit for a long time might cause negative effects on the economy. US dollar has appreciated and further, there is a massive rise in demand for imports, these factors are widening the trade deficit.

Following actions must be taken by the government to correct such large trade deficit:

• The government must renegotiate its trade agreements with other countries
• US must increase its export and reduce import dependencies.
• Productivity is key to increase export.

Further, US is maintaining largest trade deficit with China, it amounts to $ 421 Billion which must be reduced significantly. China is artificially keeping its currency undervalued and making it's export competitive. China also does not follow the labor standard which is making products cheaper substantially. Thus, if the government is successful in improving trade deficit with China, there would be significant impact on the overall trade deficit. Thus, there must be some restrictions on cheaper import from china. Or if china addresses a few concerns of US, then also it would be beneficial for US.