Edited by Alan M. Rugman and Gavin Boyd
Chapter 9: The US current account: issues and implications
Daniel T. Griswold America’s current account deficit reached $417 billion in 2001, down from the record deficit of $445 billion in 2000 but still large in relation to gross domestic product.1 The large deficit has grown sharply in the last decade from a small surplus in 1991, and has raised worries about its implications for US industry, global capital flows and exchange rate movements. Indeed, America’s recent string of large current account deficits is widely viewed as a problem, both for the US and for the global economy. Press reports routinely refer to the trade deficit as a black mark on the economy. A growing deficit is one that has ‘worsened’, a shrinking deficit one that has ‘improved’. To trade critics in the US Congress, the deficit has become a symbol of the perceived failure of US trade policy to open markets abroad and to deliver prosperity at home. Among economists, concern has focused on whether the deficit is ‘sustainable’ or whether it might trigger a precipitous decline in the dollar on foreign exchange markets. This chapter will analyze the causes and implications of large US current account deficits, including how they both reflect and affect America’s transatlantic commercial relations with the European Union. A BRIEF HISTORY OF THE US CURRENT ACCOUNT The current account measures the cross-border flow of trade in goods and services, investment income, and unilateral transfers. In 2001, Americans exported $720.8 billlion in goods and imported $1147.4 billion, for a merchandise trade deficit of $426.6 bllion....
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