宏观经济学╱应用经济学研究生系列教材[英文]Chapter 5.pptVIP

The U.S. Trade Deficit During the 1980s, 1990s, and 2000s, the U.S. ran large trade deficits, with the exact size fluctuating over time yet still quite large. In 2007, the trade deficit was $708 billion or 5.1% of GDP. As accounting identities require, this trade deficit had to be financed by borrowing from abroad (i.e. selling U.S. assets abroad). During this period the U.S. went from being the world’s largest creditor to the largest debtor. What caused the U.S. trade deficit? There is no single explanation. But to understand some of the forces at work, look at national saving and domestic investment (remember that the trade deficit is the difference between saving and investment). The start of the trade deficit coincided with a fall in national saving. This development can be explained by the expansionary fiscal policy in the 1980s. With the support of President Reagan, the U.S. Congress passed legislation in 1981 that substantially cut personal income taxes over the next three years. Because these tax cuts were not met with equal cuts in government spending, the federal budget went into deficit. These budget deficits were the largest ever experienced in a period of peace and prosperity, and they continued long after Reagan left office. According to our model, such a policy would reduce national saving, causing a trade deficit. Because the government budget and the trade balance went into deficit at the same time, these shortfalls were called the TWIN DEFICITS. Lets see what happens as things start to change in the 90s on the next slide… More on the U.S. Trade Deficit Things started to change in the 1990s, when the U.S. federal government got its fiscal house in order. The first President Bush and President Clinton both signed tax increases, while Congress put a lid on spending. In addition to these policy changes, rapid productivity growth in the late 1990s raising incomes and thus further increased tax revenue. These developments moved the U.S. federal budget t