The U.S. trade deficit is the result of a net inflow of capital to the United States from the rest of the world. They have become a net importer of capital because Americans do not save enough to finance all the available investment opportunities in their economy. This inflow of capital from abroad allows the US to pay for imports over and above what they export. The US has been holding a trade surplus since the World War II, a war that harmed much of the most significant international competition for the US industry. Therefore before 1970, the US industry had much to gain from free trade. Nevertheless after 1970, the trade surplus turned into trade deficits, which increased considerably throughout the 80’s and the 90’s. During the 80’s the percentage of GDP accounted by gross saving fell considerably, widening the gap between supply of saving and the demand for domestic investment. Throughout the early 1990’s the trade deficit shrank as the economy growth slowed down but increased after the current expansion began in 1992 as the demand for private investment grew. In 1999, the U.S. trade deficit reached a record level. It has been increasing as a share of the economy’s total output. The current account rose from 1.4 percent of GDP in 1990 to 3.7 percent in 1999. During 2003 the US registered a trade deficit record of $489.4 billion. The annual trade deficit, reported by the Commerce Department, was 17.1% larger than the previous record shortfall of $418 billion posted in 2002. However US exports made gains in 2002 totalling $1 trillion and a 4.6 %increase from 2002. ; Declining share of saving. This decline led to a shortage of funds for domestic investment, which caused real interest rates to rise higher, making the US an attractive target for investment. These large net capital inflows have been keeping the dollar strong, …
US Trade Deficit Paper
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