Deficits and the Dollar

This is Gwen Outen with the VOA Special English ECONOMICS REPORT.

Last week the Commerce Department reported on the United States trade deficit in September. The United States imported almost fifty-two thousand million dollars more in goods and services than it exported. The deficit remains very high. But it fell in September by almost four percent from the month before.

Imports decreased, while exports increased. Trade specialists say American exports should continue to increase as long as the dollar is weak. Basically, strong currencies help importers; weak currencies help exporters.

In Europe, there is concern about the added cost of European exports from the strength of the euro against the dollar. In the past week it took about one dollar and thirty cents to buy one euro.

In China, the situation is different. China links the value of its currency, the yuan, to the dollar. The set exchange rate keeps down the cost of Chinese exports. American competitors are not happy about this policy.

The trade deficit with China is expected to set a new record this year. It was over fifteen thousand million dollars in September alone. The second biggest deficit was with Japan, at six thousand million dollars.

Countries that have a trade surplus with the United States usually buy American government debt with the dollars they receive in payment. This way, they earn interest on their investment. Japan and China together own about one-fourth of the debt of the United States Treasury.

Japan also buys a lot of Treasury debt with its own currency. This means there is a lot of yen on world currency markets. This keeps down the value of the yen, and the cost of Japanese exports.

Economists say the presence of a trade deficit does not mean that an economy is doing poorly. In fact, some say trade deficits are not very important. They are more concerned about record budget deficits in the United States.

These economists worry that too much American borrowing could harm the world economy. But other economists say world markets have enough to lend.

Treasury Secretary John Snow says cutting the budget deficit in half is a top goal of President Bush in his second term. Mr. Snow also says the United States supports a strong dollar. Speaking Wednesday in London, he urged European countries to increase their economic growth more quickly.

This VOA Special English ECONOMICS REPORT was written by Mario Ritter. This is Gwen Outen.