The U.S. Current Account Deficit

The U.S. Current Account Deficit

The problem of increasing current account deficit run by the United States of America has been widely involved into heated discussions at the national and the international levels. Scientific researches have proved the increase of current account deficit in the USA since the beginning of 1990s, while the present account deficit is about 6 percent of GDP [1]. Along with the discussion concerning the level of danger for economic outlook, which may be associated with the deficit, economists and politicians have been discussing the ways how to eliminate the deficit and stabilize economic situation. Despite of the fact that account deficit is not considered to be a favourable economic phenomenon, it is not so dreadfully dangerous. Running into current account deficit means that a country (the USA in our case) is purchasing more goods and services from foreign producers than sells domestic goods to foreign consumers. Thus, the import of goods exceeds the export. The reasons for it might be rather diverse, however, the main one is of course economising. For the USA it is more favourable to buy cheaper Chinese or Indian goods, which are of the same quality than those produced in the US, but at higher prices. But such behaviour does lead to account deficit, which is usually formed over time and cannot appear in one moment. The most negative feature of current account deficit is that its presence means that a country is spending more money than it is earning from domestic production. In order to reduce current account deficit government officials may decide to take following steps. First of all they may gain more control over exports and imports, by implementing certain import restrictions, duties or tariffs in order to decrease import and increase export. Government may issue certain programs that would support domestic producers, by providing them with certain incentives to innovate, increase the quality of goods and reduce the price in order to receive advantage while competing with foreign goods. Also, government may control the price of exports and make it cheaper by reducing domestic inflation and changing monetary policy.

Bibliography

1. Coughlin, C.C., Pakko, M.R., Poole, W. (2006). How Dangerous Is the U.S. Current Account Deficit? http://stlouisfed.org/publications/re/2006/b/pages/account_deficit.html
2. Engel, C., Rogers, J.H. (2006). The U.S. Current Account Deficit and the Expected Share of World Output. Journal of Monetary Economics. Vol. 53(5), July.