The U.S. Trade Deficit: Causes, Consequences, and Policy Options

The current account balance is the nations most comprehensive measure of international transactions. It has three component balances the goods and services balance, the investment income balance, and net unilateral transfers. These are all transactions thought to be closely related to current production, consumption, and income. For the United States, the size of the current account deficit is largely the refection of a similarly sized goods and services deficit i.e., trade deficit. The U.S. current account trade deficit grew steadily from 1992 through 2006. In 2007, however, the trade imbalance decreased to 726.6 billion from 803.5 billion in 2006. In 2008 and 2009, the trade deficit continued to decrease, reaching 706.1 billion and 419.9 billion, respectively. These decreases reflected strong export sales and a steady weakening of import purchases. A sizable depreciation of the dollar from 2002 through 2007 made U.S. exports more attractive to foreign buyers and imports less attractive to American buyers. In addition, since 2006, economic growth in the United States slowed relative to that of its major trading partners. As a percentage of GDP, the trade deficit in 2009 decreased to 2.9, down from a record 6.1 in 2006.