U.S. Trade Deficit: Causes, Consequences, and Cures [Updated May 16, 2006]   [open pdf - 130KB]

"The U.S. trade deficit has risen more or less steadily since 1992. The trade imbalance reached $804.9 billion in 2005, an increase of nearly $137 billion over the 2004 deficit, and a rise of about $755 billion since 1992. The deficit's growth in 2005 was for the most part the consequence of a sharp acceleration of import purchases, up nearly $225 billion, in a fast growing economy. Exports also increased in 2005, but by a smaller $122 billion. Together this has resulted in the trade deficit reaching another record size in 2005. The investment income component of the trade balance deteriorated from a surplus of $30.4 billion in 2004 down to a surplus of $1.6 billion in 2005. The large and growing size of U.S. foreign indebtedness suggests that the longer term trend will be toward investment income deficits. [...] 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 most likely 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."

Report Number:
CRS Report for Congress, RL31032
Public Domain
Retrieved From:
U.S. Dept. of State, Foreign Press Centers: http://fpc.state.gov/
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