1. The U.S. has experienced sizable balance of payments deficits over the past t
ID: 1162054 • Letter: 1
Question
1. The U.S. has experienced sizable balance of payments deficits over the past three decades. This trend has continued in the past decade, with our trade deficit becoming even larger during that time. Discuss what factors you believe to have contributed significantly to this. Then, point out the benefits and costs of any economy having a balance of trade deficit. Beyond what you have identified as having contributed to the recent U.S. balance of trade deficit, discuss three or four other determinants of balance of trade changes.
Explanation / Answer
The U.S. has been quite popular for running huge amounts of balance of payments (BoP) deficits over the last few decades. Recently in 2016, the gap rose remarkably which shifted a considerable amount of attention on the issue. Some of the factors that significantly contributed to the U.S’s growing trade deficit can be explained as follows:
Trade deficit has both benefits and costs to the economy. Trade deficit within controlled limits is actually a sign of good health of the economy. Some of the benefits are trade deficit are:
However, trade deficits also come with a number of costs to the economy, some of which are:
Besides the factors which particularly resulted in USA’s trade deficit to rise, there are some other factors which in general cause the trade deficit of any other country to increase:
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