The Causes And Adjustment Of US Current Account Deficit

The US current account deficit has reached the historical height again. It has aroused controversies and caused great concerns to the US government officials and many economists from home and abroad. In this paper, the author tries to analyze various opinions on the causes, trends and cures of US current account deficit.Firstly, the author points out that the current account deficits in the US have been unprecedented. Internationally the NIIP is not unbearable, but the sharply increasing US deficits have both very strong economic and political implications. Secondly, the author analyzes the causes of current account deficits from four perspectives respectively: micro, macro, systematic and accounting. The author finds out that the current flawed international monetary system is the root cause of the chronic US current account deficit. Thirdly, the author tries to examine the sustainability of the US current account deficit. As the foreign capital was used to finance government and individual consumption more than investment, and the investment in tradable goods keeps shrinking compared to non-tradable goods, the author concludes that the current account deficit is hard to be sustained. Lastly, the author investigates the ways in which the US current account deficits can be reduced. The author finds out that the most important strategy for the US government in the short term is to negotiate for a more liberalized international service market. In the long term, however, the reform of international monetary market is the key.The main findings of this paper include: first, based on the relevant data over the past 25 years, the author finds put that the US current account deficit has been nearly increasing persistently at a constant speed. Therefore, it is more of a systematic problem, which is the international monetary system with the nature of "dollar standard". To a certain extend, the "dollar standard" almost ensured that a large and growing US current account deficit would not expose US economy to international speculator's attack. Moreover, the dollar standard also contributes to the fact that the US government tends to resort to dollar depreciation to adjust its current account deficits. Second, the author tries to include the political factor into the analysis of the current account deficit. The political implications of US current account deficit are: 1) the dollar standard is closely related to the US hegemony, therefore, the persistent US current account deficit is also related to the US hegemony; 2) as the US current account deficit tends to make people believe that US is the victim of the international free trade, which is usually induced by the US Congress and some related interest groups, the domestic pressure to adjust the increasing US current account deficit is inevitable; 3) different adjustments may exert different influences on the economy of different countries. Therefore, the political and diplomatic factors play an essential role in the ways of adjustment of US current account deficit. Historically the US government has been reluctant to change its domestic economic policies and always tried to employ "dollar weapon" to shift its responsibility, and so is the current Bush Administration.