U.S. Trade Deficit

Name XXXX

Professor XXXX

Course XXXX

27 April 2008

United States Trade Deficit

1 . What is a trade deficit

A trade deficit occurs when a country is importing more goods and services than it is exporting . For instance , in the first half of 2004 the United States (US ) recorded an aggregate trade deficit of 575 .5 billion , with the US imports accounting for 51 larger than the US exports (Scott , 2004

2 . What are the primary reasons for the United States (US ) trade deficit

Scott (2004 ) noted

that the main reasons for the US trade deficit include (1 ) Significant increase in the value of petroleum imports . The volume of petroleum imports registered a 6 .5 -annual increase in 2004 , coupled with the dramatic increase in the petroleum price by 14 .8 . The growing consumption level of petroleum products notwithstanding the rising petroleum prices denotes inelasticity of petroleum demand to substantial price increases (2 ) Rapid decline in international competitiveness of the manufacturing sector . The US deficits with China , Western Europe , Pacific Rim and other newly industrializing economies , reflect the strong export performance of these foreign countries relative to the weaker US domestic manufacturing industries . In particular , the US has the largest trade deficit with China among other countries such that , the US exports to China are about one-fifth of the US imports from China

The US deficit on manufactured goods rose by 16 , from 216 billion in 2003 to 252 in the first half of 2004 . The percentage of the merchandise deficit to the US gross domestic product surged up to 5 .3 in the second quarter of 2004 . Between 1997 and 2003 , the manufacturing sector lost 3 .3 million jobs . Even with 91 ,000 jobs that have been generated in the manufacturing industry since 2004 , the manufacturing trade deficit has continued to deteriorate . To offset the declining international competitiveness , a strong growth in domestic manufacturing demand is needed . Particularly , the US needs a huge increase in its domestic manufacturing output by 18

3 . How does a falling dollar impact the trade deficit

A falling dollar will make the US exports cheaper . This will boost foreign demand for the US exports and increase production of goods that will eventually help reduce the trade deficit . For instance , the 30 -reduction in dollar from 1985 to 1988 was necessary to achieve a 1 -share of trade deficit to US GDP by 1989 (Scott , 2004 . The dollar was maintained at that level through 1997 to keep a 1 -share of trade deficit to GDP (Scott , 2004 . As the dollar started to climb and peaked in 2002 , the US trade deficits worsen (Scott , 2004

The 9 .7 annual decline of the US dollar since 2002 has yet to lower the trade deficit as Asian governments intervened to keep the dollar value artificially high , among others (Scott , 2004 . This had expanded the trade gap , instead of minimizing the gap

On the other hand , a weaker dollar makes the US imports more expensive This will shoot up...