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Robert E. Scott: Despite rising oil prices, U.S. trade deficit improves
WASHINGTON -
The Bureau of Economic Analysis said last week that the U.S. current account deficit, the broadest measure of foreign trade, improved to $738.6 billion in 2007 ... a decline of 9 percent ... that reflects the slowing U.S. economy and the cumulative effects of a lower dollar. ... The cheaper dollar and strong global growth have stimulated U.S. exports, which ... increased 15 percent in 2007. At the same time, the U.S. economic slowdown and the falling dollar reduced the rate of growth of U.S. imports, which fell to 8 percent in 2007. ... Despite the improvement in the deficit, the United States still borrowed more than $2 billion every day in 2007 to finance its trade deficit. ... Many economists now agree that large U.S. current account deficits are unsustainable in the long term. As the United States finds it more difficult to attract the capital needed to finance its current account deficits, the sharply declining dollar is creating an even harder landing for the domestic economy. ... A substantial and controlled reduction in the dollar ... would be the best and most effective way to bring about an orderly reduction in U.S. trade and current account deficits and lower the risks of a financial crisis. This implies an additional dollar fall of 10-15 percent against the major currencies. ... China and other foreign governments have prevented this adjustment by intervening in foreign exchange markets to block the fall of the dollar. The risks of an international financial crisis appear to be growing. China must be persuaded to stop manipulating its currency to promote trade adjustment and prevent a deeper financial crisis and recession in the U.S. and world economies. Read more at www.epi.org. |