Question

United States has a large deficit with many of its trading partners; yet, the deficit will continue to exist or may even grow larger in foreseeable future. Discuss why. (Hint: buying power of American citizens compared to citizens of other countries, over-valued dollars, freedom of choice of our citizens allowed by our government.)

Answer 1

Trade deficit occurs when a country import becomes larger than export. Present US trade deficit is close to the $ 470 Billion, or US is running huge deficit and which is close to 2.3 % of GDP. Following are possible reasons for US trade deficit:

• Consumerism : American society is highly consumption oriented society. Thus, huge consumption leads to imports and further, country also consume larger portion of domestic output. Thus, trade deficit crops up.
• Over valued dollar: Value of dollar is high or it has been overvalued. Many countries such as China have kept their currency artificially low valued. These countries can easily sell their products overseas. Hence, import for US become cheap, so import rises.
• Further, government does not impose any kind of restrictions on buying habits of people, that also drives society towards the mass consumption.
• Cost of production in USA is relatively high due to high cost of labor. Thus, US goods can not be sold easily in international market, so it keep the export subdued.

President Trump has taken distinct measures to deal with rising trade deficit and it is likely to come under control in near future.