Trade Deficit Grows As Strong Dollar Hurts Exports

The health of the current U.S. economy appears to be growing gradually. The second quarter real GDP growth was 3.7% and the unemployment rate declined to 5.3%. The U.S Federal Reserve (Fed) is expected to raise interest rates in the near future when it sees clear signs of strong economic growth and improvements in the job market.

The current state of the U.S. macro economy is made up of a plethora of highly involved processes. I am going to attempt to explain some simple terms and concepts focused on international trade and foreign exchange rates.

The U.S main trade allies are Canada, Mexico, China, Japan, Germany, South Korea, and France combing for a total of 180 billion dollars earned. But not only do we earn money by exporting, we spend money importing the U.S spent 388 billion dollars on imported oil. “We aren't addicted to oil, but our cars are”.James Woolsey..On other products such as forest products, cars, food, and footwear we spend about 124 billion dollars from china which is the most from a country. In 2013, the total U.S. trade deficit was $476.692 billion. This is because the imports of $2.76 trillion exceed its exports of $2.28 trillion (Amadeo, Kimberly). This also shows the economy is strengthening, because of the deficit is lower than in 2012, when it was $537.6 billion. Another big cause to the trade deficit is consumer products. The largest products are drugs, consumer electronics, clothing, household goods, and furniture. Vehicle and mechanical products are another category where the U.S. ran a trade deficit in 2013. They imported $294 billion worth of cars, trucks and auto parts, while only exporting $146 billion, causing a huge deficit of $148 billion (Amadeo,

The US economy contracted at an annualized rate of 2.1 percent in the first quarter, as inclement weather weighed on output in virtually every sector of the economy.

If consumer spending and exports decrease, Canada’s economy can decline simultaneously with the American economy. As mentioned above, international trade accounts for 45% of Canada’s GDP. On April 1, 2011, the loonie hit a three-year high after U.S. employment increased and the jobless rate decreased. The dollar increase from a decrease in U.S. unemployment exemplifies America and Canada’s trading partnership and coinciding economies.

• As previously stated in the executive summary, the United States’ economy is currently stagnating. From week to week we may see a rise in one indicator while there is a fall in another indicator, but none of the rises or falls are drastic enough to have an overwhelming impact on the economy as a whole. Although the economy is not near as strong as it was before the 2008-2009 recession, arguably one of the biggest economic crises of the past decade, there has been much growth and strength throughout the past few years with this year being the first year in which the economy is in somewhat of a holding pattern. I believe, that even with the little growth and movement of the United States economy over the past year, it is still perhaps one of the strongest economies in the world at the moment.

Next, the United State firms find it harder to compete in foreign market. When the US dollar strengthens, foreign trade partners will have to pay more euros and pounds in order to make up for the appreciated dollar when they import from the Unites State. The increase in dollar will eventually decline the demand as American made goods become less attractive to buy at the consumer level in foreign country. This is because the United State has to compete with lower price foreign goods. This slump in demand will ultimately translate into thinner profit margins of manufacturers and producers in the United State, reducing expansion potential in the country. The result in the longer term will be slower growth even as the United State consumers up their near term standard of living. Besides, foreign tourists find it more expensive to visit the United State. For example, I’m a Malaysian. If I wanted to exchange money to have a vacation at either the United State of America or Australia, I have to compare the exchange rate. In the past, exchange rate between Australia Dollars(AU) and Malaysia Ringgits(RM) was RM 2.8 per AU while exchange rate between the United State

Researchers, including Autor, indicate increments in exchange and off shoring as a reason for money disparity. As per this speculation, developing exchange between the United States and whatever remains of the world, particularly China has expanded the quantity of imports in the U.S. economy, which has prompted work misfortune in ventures that initially delivered this merchandise in the United States. Off shoring has likewise influenced employments and wages. Both these exchange marvels prompt declining occupation, falling work compel interest, and feeble expansion balanced wage development. Conceivable strategy answers for this pattern incorporate those that would make U.S. trades more aggressive, among them the devaluation of the U.S.

Gross domestic product, the largest evaluate of products or services created in the U.S., increased at an yearly rate of 4.6 percent in the second quarter, that changed past 4.2 percent reading and equaled the strongest quarter of the five-year-old recovery, related the final three months of 2011. Consumers are stepping up spending only slightly, as a increase in job development this year has yet to convert into considerably higher salaries. Temporarily, a lenient global economy remains to weigh on the U.S. as dropping growth in Europe and Asia restrains American exports.

For the past three decades the U.S. trade deficit with China has been growing. In 2013 U.S. trade with China was $562 billion, but resulted in a trade deficit of $319 billion. Nader states that the

A weak dollar, on the surface sounds negative. When the U.S. dollar is weak, it depreciates in value and less foreign currency can be purchased (Wolla, 2015). As the dollar loses value compared to other foreign currency, exports become more attractive to foreign countries. The foreign countries are able to buy additional U.S products and exports increase. Alternatively, imports to the United States are reduced as the weak dollar makes foreign prices for goods increase. Although this is a positive impact for U.S. companies who compete on imported items (Wolla, 2015). When the dollar is weak, U.S. exporters and competitors for foreign imports benefit (Wolla,

One of The United States issue with its economy is the growth. The United States trade is at a disadvantage. The international value of The United States has rose in comparison of other country

The current rate of GDP growth, according to the Bureau of Economic Analysis, is 2.7% (for Q3), and it was 1.3% in Q2 of this year. This rate reflects relatively slow growth, with challenges remaining in the domestic market and with sluggishness in Europe suppressing exports to that region. The rate of GDP growth is predicted to slow to a decline of 0.5% between Q4 2012 and Q4 2013, the US re-entering recession, according to the Congressional Budget Office's projections. These projections are based on the provisions of the Budget Control Act being enacted, though any observers are doubtful that this will occur.

The U.S. trade deficit has risen more or less steadily since 1992. In the second quarter of 2004, the trade deficit relative to GDP surpassed the 5 percent mark for the first time. Many economists already considered trade deficits above 4 percent of GDP dangerously high. The fear is that continued growth in this external imbalance of the U.S. economy will ultimately spook overseas investors. http://www.americanprogress.org/issues/2004/09/b193700.html

Economists today think that factor endowments matter, but that there are also other new yet important influences on trade patterns. The balance of payments includes the payments made for net exports as well as financial transfers. A trade deficit must be balanced with foreign investments, declines in reserves, or increased debt; likewise, a trade surplus will be balanced out with financial outflows or increased reserves. However, a country may not be able to take full advantage of its external economic opportunities unless its internal domestic economic organization is strengthened and improved. William Cline talks about the relationship between macroeconomics and trade policy, pointing out that the 1930s “provided a classic case of mutually reinforcing interaction between economic downturn and protection” (123). One alternative to US external adjustment would be the import surcharge in 1971, but it would let foreign countries immediately retaliate with their own special protection against US goods. Similarly, during the recession in 1980s, “loose fiscal and tight monetary mismatch and failure to recognize the importance of avoiding sharp dollar appreciation” were the central mistakes, which lead to huge trade deficit (126). In the absence of forceful correction of US fiscal deficits and some additional decline in the dollar, external deficits would widen even more. Therefore, proper fiscal, exchange rate, and international coordination policies are needed to help avoid