United States Trade Deficit - Term Paper Example

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In the recent years, United States has been faced with an unprecedented amount of borrowing. It has also managed to support its overwhelming account deficit without experiencing significant challenges in foreign investors holding its assets. …
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United States Trade Deficit
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However, more need to be done in ensuring that the country attracts the same amount of extra foreign savings. This is because the US deficit has plummeted far enough to chew on the resources generated abroad. In fact, the level of borrowing has overtaken the amount of funding from other countries. The trade deficits has also been linked to the current rapid economic globalization (Higgins & Klitgaard, 2007). As a result, there has been increasing interest from various stakeholders regarding the growing United States current account deficit. These concerns have led to generalized view that the current state of global imbalances is unsustainable. Therefore, change will have to take place in the near future. The heightened increase in the US current account deficit has increased analyst worries. Some of the analyst argues that this trend is unsustainable. Other views that the world will be faced by a sweeping financial crisis while other predict the prospect of dollar collapsing and hence financial meltdown (Edward, 2005). These issues relating to the performance of the United States economy are a matter of interest to the rest of the world. A reflection on United States trade deficits helps in understanding its impact and sustainability. The trade deficits affect United States economy on different ways. One of the main factors is that it has led to increase in United States economic growth. ...
On the other hand, the increase of foreign capital flow leads to United States deficit increasing further (Mann, 2002). However, the financial obligations of repaying such deficits have been small in comparison to the economy. The trade deficit is sustainable in the United States economy due to various factors. Firstly, most of the United States borrowings are from local institution. On the other hand, large amount of the capital flowing in the United States is made up of foreign direct investment and portfolio investment (Mann, 2002). The other benefit the country gets is that most of the transactions are in dollars. This maintains the demands for dollars high and hence demands for high liquid U.S. government security firm (Mann, 2002). These factors make united state capable of sustaining a large external deficit. This is in comparison with other countries that are dominated by foreign currencies. Moreover, sustainability is achieved to increased global savings and flow. This has caused foreign portfolio to be tilted towards the dollar assets. This exerts downward on the dollar and other U.S assets prices. In fact, there has been increased appetite on foreign acquisition of United States assets (Higgins & Klitgaard, 2007). Moreover, increased investment in the U.S has helped the country to be able to obtain more foreign investment. Moreover, the current deficit has been sustainable due to the country ability to repay its debts. This has been seen when the country makes a commitment without having an effect on its economic policies. However, the sustainability the U.S. enjoys may not last for long. This is because its assets may lack favor in the near future. This may also because by lack of reforms in its fiscal policies. This is because of the Read More
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