deficit (what occurs when imports exceed exports) or a trade surplus (exports
exceed imports). The flow of the world economy is constantly fluctuating. In
order to know precisely what our country’s global economic position is, foreign
trade must be measured. The Bureau of Economic Analysis submits monthly reports
broadcasting the difference between exports and imports in billions of current
dollars. This report, known as the International Trade Balance, analyzes the
various international goods and services that are exchanged between countries.
When paired with the quarterly Current Account Balance (an updated reading of
trade and other certain seasonally adjusted transactions), it provides a
powerful tool for economists and government agencies to calculate foreseeable
trends. It also allows a gauge for which to adjust shortfalls where economic
weaknesses exist and improve international standings. Aside from sustaining our
own nations’ powerful trade balance, we provide a positive image with other
countries. The U.S. promotes peace and goodwill through exchange. These
qualities have an indirect effect on the economy by ensuring that our trade
partners have faith in our products and continue to contribute to our economy.
Various factors can cause the foreign trade indicator to change. Exchange rates,
quotas, and tariffs are some of the factors that drive change. Whether a country
runs a trade deficit or a surplus is dependent on the supply and demand of its
goods and services. Political climates can produce trade restrictions with other
countries as well. For example, large deficits often provoke nations to prohibit
imports. This causes negative impacts that offset the initial purpose of
lowering the deficit, such as reducing domestic competition and instilling
resentment from other countries. This often leads to trade wars. Historically,
the U.S. has been an economic juggernaut in the trade deficit area. During
periods of economic growth, traditionally the U.S. trade deficit increases.
According to the most recent BEA quarterly Current Account Balance Report, the
January U.S. trade deficit hit an all-time high of $28.0 billion, up from $24.6
billion in December. While exports declined from their December level, imports
continued to trend strongly upward. The annual rate deficit totaled $336 billion
in January, up from $268 billion this time last year. Of course, higher oil
prices were a major contributor to the rising trade deficit. The deficit is
predicted to remain high, and the U.S. economy will continue to outpace the
economies of its trading partners. Economic Outlook The overwhelming trend
amongst all thirteen indicators suggests the U.S. economy will continue to stay
in a period of economic growth. However, growth leads to increases in spending,
which in turn leads to higher inflation rates. Inflation must then be kept in
check by adjusting interest rates. National Output and Income levels are
increasing at healthy rates suggesting employment rates are strong. The American
people are working, making and spending money, and nothing suggests that is
going to change any time soon. Manufacturing production is growing at its
strongest pace since 1997, according to the Federal Reserve’s index of
industrial production. As long as the American people continue spending money,
buying goods and services, manufacturers will continue to produce at increasing
levels. This in turn reflects the increased levels of Personal Consumption
Expenditures and retail sales. Despite increases in mortgage rates, housing
starts have increased 1.3 percent to its highest level since January 1999. The
American population having increased incomes fosters increased spending,
domestic and abroad. This increased level of foreign spending continues to widen
the gap in our trade deficit. Another untapped indicator of a booming economy
may be the large number of American military members leaving the security of
active duty for more lucrative opportunities provided by the private sector.
Collectively all these indicators lead us to conclude the U.S. economy will
continue to flourish.