US Current Account Deficit: Repercussions on Global Economy *

Abstract:

The caselet presents the influence of the US economy on global economic growth. It traces out the reasons for the trade and budget deficits of the US. The caselet depicts the threat to the global economy due to the depreciation of the US dollar against other currencies. It gives the opinions of economists and analysts on ways in which the US can reduce trade deficits.

Issues: » Trade and budget deficits of the US. » Reasons for the all-time high trade and budget deficits of the US. » US trade deficit and threats to the global economy. » Excessive borrowing by the US from foreign nations and its impact on the global economy. » Impact of depreciating dollar on the incomes of various countries of the world.. Introduction The US economy along with the Chinese economy is the main engine of global economic growth. But economists have of late been worried about the enormous trade and budget deficits of the US. The trade deficit of the US was at an all-time high of over $60 billion during November 2004 and the budget deficit in 2005 is expected to touch a record $427 billion.

Questions for Discussion:

1. Do you think the US has been excessively depending on foreign funds to finance its budget deficits? Also comment on the measures suggested by the economists to bail out the US from budget deficits.
2. One of the major worries for many countries is the declining value of the dollar. Discuss the repercussions of a weakening dollar.

Key words:
Global economic growth, US economy, Chinese economy, terrorist attacks, World Trade Center, foreign central banks, current account deficit (CAD), International Monetary Fund (IMF), European imports, European exporters, oil producing countries, Bank of International Settlements, trade deficit, trade barriers, free trade, domestic savings, yuan (Chinese currency)

* This caselet is intended for use only in class discussions.
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