Falling Dollar Shrinks US Trade Gap

The US trade deficit, that is the imbalance between imports and exports, with the rest of the world uses numbers usually restricted to measuring distances in astronomy. Last year, the US took in goods and services worth $711.6 billion more than it shipped out; more than the defense budget. However, it represents a 6.2% decrease compared to 2006. Of course, the dollar has declined, and just like the textbooks say it should, that cut the deficit.

The US has had rising trade deficits since 1991, when it was merely $31.2 billion. To appreciate just how far out of whack the situation has become, in December 2007 alone, the trade deficit was $58.8 billion, and that was down from $63.1 billion in November. And most of this is due to increasing one-way trade with China.

Still, every silver lining has a cloud. The last time there was a decline in the trade gap was 2001, brought on by recession. Less demand in America results in fewer imports, while exports tend to remain stable. With all the talk of recession in the US, this falling trade gap is another sign that things are going wobbly.

The Wall Street Journal broke down the December changes like this: “Purchases of foreign-made consumer goods like household goods fell by $495 million. The trade report showed December imports of capital goods such as such as telecommunications equipment decreased $81 million. Food and feed imports fell $211 million. Auto and related parts imports plunged by $2.1 billion. Imports of industrial supplies increased by $791 million in December.”

On the export side, the WSJ writes, “US sales abroad of capital goods, including airplanes, increased by $1.97 billion during December. Consumer goods exports rose by $562 million. Sales of industrial supplies rose $988 million. Auto exports decreased $856 million. Food, feed, and beverages went down $135 million.”

Still, each and every year, America imports hundreds of billions more than it exports. That means hundreds of billions of US dollars are shipped out to make the books balance. And as the value of the dollar drops, the gap does shrink but the willingness of non-Americans to accept dollars to maintain the balance drops. It’s a situation that cannot persist, and the result will likely be very painful.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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