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This 4 page paper examines the causes of the U.S. trade deficit. Bibliography lists 3 sources.
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4 pages (~225 words per page)
File: D0_HVTrdDef.rtf
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deficits and answers specific questions about them. Discussion The first thing we hope to find out is why the U.S. runs trade deficits. The answer is that the deficit grows
in response to an accelerating flow of capital into the United States; in 2003, the growth of the deficit "was for the most part the consequence of a sharp acceleration
of import purchases, up nearly $110 billion, in a fast growing economy" (Elwell, 2004). Coupled with that is the fact that exports "had been falling since 2000, but in response
to a cheaper dollar and faster growth abroad, increased about $40 billion in 2003" (Elwell, 2004). Together, these factors meant that the deficit has now grown larger than ever (Elwell,
2004). Is the deficit a problem? Yes, in certain regards. The deficit is caused in part by the fact that Americans are not saving enough to finance U.S. investment, so
the money comes from abroad (Elwell, 2004). This is fine in the short term, but in the long term it means that Americans get out of the habit of saving.
In addition, the trade deficit "allows the United States to spend now beyond current income" (Elwell, 2004). By borrowing funds from other nations, the "United States [lives] better today, but
the payback must mean some decrement to the rate of advance of U.S. living standards in the future" (Elwell, 2004). In addition, Elwell says that while deficits "do not now
substantially raise the risk of economic instability ... they do impose burdens on trade sensitive sectors of the economy" (Elwell, 2004). The way this is worded, we can assume that
although they are not current causing instability, they could do so at some time in the future. Turning to the practice of international investment in the U.S., we find that
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