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| 2001 Current Account Will Reach 4.2 percent of GDP |
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Friday, December 21st, 2001
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In the spring, we predicted here that the goods and services deficit would total a stunning $350 billion in 2001. That forecast still stands. Those who promised a big reduction in the trade deficits as the economy cooled have been confounded. By Eamonn Fingleton.
During the East Asian financial crisis of 1998 American economic commentators suavely assured us that America�s then soaring trade deficits were not a sign of weakness but rather of strength. America�s imports had surged because the U.S. economy was booming at a time when many other nations were struggling. Thus the big deficits of that year (up more than 70 percent in the space of two years) were supposed to be a temporary excess. As such they would assuredly soon be corrected once the U.S economy went off the boil.
Well the U.S. economy has now well and truly cooled but, guess what, the big trade deficits are still with us. And how. The October goods-and-services deficit at $29.4 billion was one of the worst monthly trade performances in history. True, it represented a decline of 15 percent on the all-time record of $34.5 billion incurred in September 2000. But to see the October figure in proper context, you should remember that the highest monthly deficit ever recorded before 2000 was $25.5 billion (in November of 1999). And 1999 was of course a boom year for the U.S. economy.
All in all we are headed for a goods and services deficit for calendar 2001 close to my forecast of $350 billion. That would be a fall of a mere 7 percent on the all-time record of $376 billion incurred in 2000. As for the current account (which is a wider measure than goods and services and is the one that economists regard as the more meaningful), it looks like we are headed for a deficit of about $420 billion for 2001 � compared with about $450 billion in 2001. In other words, the current account is likely to represent about 4.2 percent of GDP this year. That would be a reduction compared to the shocking new record of 4.5 percent set in 2000. The appropriate comparison is not, however, with 2000 but rather with the early 1990s when the United States last suffered a recession. It is a telling fact that in 1991, helped by some payments associated with the Gulf War, the United States actually recorded a surplus of more than $4 billion -- equal to about 0.1 percent of GDP.
What is all this telling us? Basically that America does not make much of anything any more. Even in the worst economic times in a decade, America must continue to import at near record levels. There is no alternative � because so much of the country�s once unbeatable manufacturing base has been hollowed out.
Eamonn Fingleton is the author most recently of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity (Houghton Mifflin, 1999).
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Contact Eamonn Fingleton |
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