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Times: U S Trade Balance And Deficit Is Improving

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The Sunday Times

May 21, 2006

US deficits are falling but there is a price to pay


American Account

YOU ASKED FOR IT. You’ve got it. We are at the beginning of the adjustment of the worldwide “imbalances” that have so troubled policymakers. The American budget deficit, complained the seers, is a testimonial to the profligate ways of Congress and the president, and must be eliminated now that America is on course to satisfactory growth.

Well, the deficit is coming down — and faster than even the critics anticipated. It seems that the president’s tax cuts have contributed to (not been solely the cause of) a spurt in tax receipts flowing from companies and high-income individuals into the Treasury’s coffers. Good news, you would think, until the mutterings start about the slowing effects on the economy of the tightening of fiscal policy.

The other imbalance that has so concerned policymakers is America’s trade deficit, at about 7% of GDP simply “unsustainable”. Great news — the trade deficit seems to be coming down in response to a falling dollar that has made it more expensive for Americans to buy foreign goods and services, and less expensive for foreigners to buy made-in-USA products.

Well, it’s not so great if you are a foreign company dependent on America’s vast market for a significant portion of your sales. Suddenly, EU critics of the world trade “imbalance” are complaining that the falling dollar will nip Europe’s nascent recovery — if that’s what it is — in the bud.

For firms exporting to America, the impact will depend very much on where they are located. EU-based companies should be hit hardest, as the euro rises to levels not seen for a long time.

Does not look good for EU and UK economies as exports decline and imports increase. Recession?

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  • 301 Brexit, House prices and Summer 2020

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      • down 5% +
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