U.S. Trade Deficit: Causes, Consequences, and Cures [April 23, 2008]   [open pdf - 181KB]

"The U.S. trade deficit had risen steadily since 1992. In 2007, however, the trade imbalance decreased to $738.6 billion from $811.5 billion in 2006. This decrease was a reflection of continued strong growth of exports sales, up $182 billion or 12.6% over their level in 2006; and the continuing deceleration of import purchases, advancing $132.7 billion or 6.0% over their level in 2006. A sizable depreciation of the dollar since 2002 has at once made U.S. exports more attractive to foreign buyers and imports less attractive to American buyers. As a percentage of GDP, the trade deficit in 2007 stood at 5.3%, a decrease from 6.1% in 2006. The surplus in the investment income component of the trade balance increased to $74 billion, up from a surplus of $36.6 billion in 2006. However, the large and growing size of U.S. foreign indebtedness caused by successive trade deficits suggests that the investment income surplus will soon be pushed toward deficit. […] Policy action to reduce the overall trade deficit is problematic. Standard trade policy tools (e.g., tariffs, quotas, and subsidies) do not work. Macroeconomic policy tools can work, but recent and prospective government budget deficits will reduce domestic saving and most likely tend to increase the trade deficit. Most economists believe that, in time, the trade deficit will correct itself, without crisis, under the pressures of normal market forces. But the risk of a more calamitous outcome can not be completely discounted. This report will be updated annually."

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CRS Report for Congress, RL31032
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