How does the USA manage its economy when its trade deficit is so huge?

Question

I read recently that the trade deficit of the USA is 80 billion dollars and this has been
going on year in and year out withut any sight of improvement. How long can this continue?

Answer 1

It can continue forever. Why not?

What's wrong with a trade deficit? The fact that the US has run an ongoing trade deficit for about 400 years (since before their WAS a US and there were only American colonies) should really begin to tell people that whatever evils they expect from a trade deficit are probably imaginary. I'm wondering when will people learn this lesson? Maybe after 600 years? 800 years? (Some years of trade surplus in the mid-20th century were probably just the result of Europe's war devastation, and only temporary).

(Below) -- Brilliant points, Johnny!

Answer 2

Countries like companies have a balance of payments; this is a statement with all the credits and liabilities that a country has within a fiscal year. The trade deficit of 80 billion is significantly smaller than the 10 trillion dollars the U.S. economy produces annually. Moreover, the key to off-setting the trade deficit is the capital account in the balance of payments; the U.S. has the largest surplus in the capital account because of the high return from foreign direct investment. This is what off-sets the trade deficit. For more info go to: www.imf.org

Answer 3

If you are using this question to answer a final exam question, I just want to make sure that you don't use the information provided by Sailon above.

Although I don't have time to go into the economic justification, there is nothing wrong with a trade deficit. A trade deficit for the most part simply means that we are shipping our manufacturing jobs overseas, and therefore importing many of the goods that we consume. This structure provides the ability to specailize, which is vital. In exchange for these goods we provide more sevice based, financial based, and information based services, most of which are or will be higher paying jobs.

Consider the progression of societies:hunter gatherer, farmer/agriculture, manufacturer, service, information based. It is pretty obvious to a rational observer that as a society progresses through these stages they become better off. Consider the fact that when we were entering into the industrial revolution, many were crying that the shift away from food production would cause our nation to starve. DId that happen? No.

With regard to this debate, critics of the trade deficit argue that we will lose our manufacturing base and therefore our middle class, which will ultimately cause the collapse of our economy. Rubbish.

Every step forward in the past has been met with opposition from those who have the most to lose from advancement (in this case, factory workers). However, each time when the dust settled people realized that the sky hadn't fallen and that our nation was much better of economically as a result of the transition.

Answer 4

The 80 billion you quoted is a one month trade deficit. The trade deficit in 2005 was 723 billion dollars. The figure for 2006 is estimated to exceed 800 billion. The cumulative trade deficit for the last 20 years is now approaching 5 trillion dollars. The numbers are staggering, but they tell a story of the decline of American industry. We continue to purchase foreign goods because they are either cheaper or better than American made goods. Each year the trade deficit has increased as the USA is not producing competitive products for the world. Subsequently the world accumulates dollars which are used to buy American businesses, American tecknology and American debt. America is in a downward spiral and has become reliant on foreign countries to meet our needs.

This is a rather dramatic shift from the 1950's when we provided for our own needs as well as the needs of much of the world. In the ensuing years, we lost our edge as other countries of the world rebuilt their industrial base. Today, America is a shell of her former self. Thousands of American factories have relocated to foreign countries where wages are a fraction of the US, benefits are negligible, working conditions are abhorrent and government protectionism is rampant. The impact in America has been the loss of millions of good paying jobs, the slow deterioration of our standard of living and the erosion of our ability to be independent.

Today, over 46 percent of our national debt is funded by foreign governments who hold massive amounts of dollars. They buy our debt because we do not produce the products they want. The mechanism that makes possible this economic anomaly is the Federal Reserve System that prints dollars 24/7 to keep up with our excesses. Inevitably, this large infusion of dollars results in inflation and the devaluing of the dollar. When this starts to happen, anyone holding dollars loses money, including foreign governments. Sooner or later, the American dollar will lose its luster and America will face an economic calamity the likes of which modern civilizations has not witnessed. Exact timing of the disaster is illusive because so much of the world is vested in the American dollar.

The process is slow and unoticed much like a hidden developing cancer, but just as death is the end result of untreated cancer so too is economic calamity if America continues to turn away from her own best interest.

Answer 5

Do you think of the popular spoiled American would do the jobs that maximum immigrants do? I agree, if there's a US Citizen that needs to or is qualified for (whilst it comes to intense tech) a activity then they'd desire to get preferential treatment over an immigrant. And immigrants would desire to go during the approach to alter right into a US citizen or get a paintings Visa. yet whilst there are jobs open that no one is taking or positions that may not be able to be crammed i do no longer think of immigrants would desire to be denied them.

Answer 6

There will be a day of reckoning...thats for sure !

As for now though Washington keeps the juggling act going by a multitude of ways.

One way is that they have the control to print more money.
They just keep making more (bills of cash) as needed.

Another area would be taxing.

Just as an example,have you realized the taxes that have gone up regarding tobacco...staggering...I'm not a smoker but I find it interesting that a product highly addictive and at the same time somewhat looked down upon by society has been chosen to be over taxed...a brilliant move by our elected officials,hhhmmmmm?

And on and on the list goes.

Now might be a good time to think of investing in gold and silver to help keep your own micro economy going in case of a national economical fallout.

Answer 7

By devaluing the dollar.

Answer 8

sell bonds to foreigners