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Occupational Health and Safety, Canadian Edition

15th Edition
by David L. Goetsch, University of West Florida and Oskaloosa-Walton Eugene Ozon, Algonquin College
1035 Solutions 49 Chapters 1477 Studied ISBN: 0133450244 Computer Science 5 (1)

Chapters 39: DQ 10

10. What have been the major causes of the large U.S. trade deficits in recent years? What are the major benefits and costs associated with trade deficits? Explain: “A trade deficit means that a nation is receiving more goods and services from abroad than it is sending abroad.” How can that considered to be “unfavorable”?


Step-By-Step Solution

10. What have been the major causes of the large U.S. trade deficits in recent years? What are the major benefits and costs associated with trade deficits? Explain: “A trade deficit means that a nation is receiving more goods and services from abroad than it is sending abroad.” How can that considered to be “unfavorable”?

Answer: (1) The U.S. economy has grown more rapidly than the economies of several major trading nations. Thus U.S. exports have not kept pace with the rise in U.S. imports. (2) Large trade deficits with China have contributed, with incomes in China too low to result in a significant increase in imports from the U.S. (3) Increases in oil prices have increased the trade deficit with OPEC nations. (4) Finally, a declining savings rate in the U.S. (while investment has remained stable) has also contributed to the trade deficit.

A trade deficit allows the Unites States to consume outside its production possibilities curve. But, the gain in current consumption comes at the expense of reduced future consumption.

A trade deficit is considered “unfavorable” because it must be financed by borrowing from the rest of the world, selling off assets and dipping into foreign currency reserves. Financing of the U.S. trade deficit has resulted in a larger foreign accumulation of claims against U.S. financial and real assets than the U.S. claim against foreign assets.


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