U.S. Foreign Trade, the Budget Deficit and Strategic Policy

Wynne Godley
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Wynne Godley: The Jerome Levy Economics Institute

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Abstract: If the U.S. trade deficit remains around its present level for a few more years it will generate an exploding growth in overseas indebtedness which will imperatively demand correction at some stage. The longer the correction is postponed, the more intractable the problem will become both for the U.S. and, indirectly, for the rest if the world. While the internal (budget) and external deficits are obviously not "twins", they are related to one another in a way which makes it impossible to eliminate one without eliminating the other. If an attempt were made to balance the budget without improving America's performance in international trade, the consequences for output and unemployment, both at home and abroad, would be extremely unpleasant. It is a pre-condition for reducing the budget deficit without generating a depressions that U.S. exports rise substantially relative to import penetration.

JEL-codes: E (search for similar items in EconPapers)
Date: 1998-12-15
Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 30; figures: included

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