What about the USA's large trade deficit? Will this be a concern in upcoming years?

The trade deficit is only half of the picture. In accounting terms, the other side of our country's deficit is its capital surplus. Even though it's obvious that it makes no sense to assess a company by discussing the liability side of its balance sheet while ignoring its assets, cash flow, and intellectual capital, many economic pundits do just that when they discuss the trade deficit but ignore the assets, cash flow and intellectual capital of the U.S. economy. Although the U.S. has a large trade deficit, we also are the world's reserve currency, the sole global superpower and the global leader in innovation and productivity. The "trade deficit" can also be seen as an investment surplus—the result of investors around the world finding our country a safe haven when economies in countries such as Russia, Brazil, Mexico, Indonesia and Thailand collapsed during the past decade. We have also been the fastest growing developed economy during this time, as Japan has fought off deflation and rolling recessions while Europe fared only moderately better than Japan. So, it is logical for non-U.S. investors to invest a meaningful portion of their wealth in this country.

The deficit should also be placed in the context of it being a function of our strong economic growth relative to the rest of the world, as it is estimated that nearly half of the trade deficit is a result of the U.S. growing faster than most of its trade partners. As economies around the world increase their growth rates, the trade deficit will naturally be reduced. Another factor to place the deficit in context is inter-company trade deficits: for example, Coca-Cola USA has a trade deficit with Coca-Cola International. Some estimates figure another one-fourth of the deficit stems from such bookkeeping among multinationals.

« Previous | Overview | Next »