Question

What determines the Current Account? What is the US and Chinese Current Account? Is this a sign of weakness or strength?

Answer 1

Current account: current account of a country shows all its transaction with the other countries. It is determined by the sum of the following components:

• Import and export of goods and services (balance of trade)
• Net transfer payments
• Net income from foreign

The income earned by these components is included in the credit side of the current account while the income payment (outflow) on these components is included in the debit side of the economy

U.S. current account deficit was $488.5 billion in 2018

China current account surplus was $545.99 HML in 2018

The U.S. current account is in state of deficit that means the inflow of income from the U.S. economy is more than the outflow while the Chinese economy is in surplus state which means the outflow of income is more than the inflow of income.

The deficit in current account shows that the payment made by the country to other countries is more than its receipts which shows the weakness of the economy

While surplus in current account shows that the payment made by the country to other countries is less than the payments it receive from the other countries. It shows the strengths of the economy as the economy is growing