Trade Deficit and the Dollar

Title: Trade Deficit and the Dollar

Congress, as part of its oversight of economic policy, has a continuing interest in the trade deficit and its potential consequences for the national economy. A persistently large U.S. trade deficit raises concerns among the public and in Congress about the trade deficit’s effect on economic growth, as well as the associated capital inflow on domestic credit conditions. There are also concerns about the burden of repaying the foreign debt that finances the trade deficit.

Key issues for Congress include: What economic policies will give the best prospect for raising the U.S. saving rate, an accomplishment that is arguably of central importance for reducing the trade deficit on the most favorable terms for the United States? What effects will long-term fiscal consolidation have on the dollar and the trade deficit? What policy adjustments in other countries, particularly those with large global trade surpluses, would help to achieve an orderly depreciation of the dollar, rebalancing of domestic and external demand in the deficit and surplus countries, continued reduction of the U.S. trade deficit, and sustained world economic recovery? How important is it to an orderly global rebalancing for countries that manage their currencies to allow their exchange rates to adjust? What is the risk of a disorderly adjustment out of dollar assets by foreign
investors? How can this risk best be managed?

Date of Compendium: September 29, 2011
Number of Pages: 157
Order Number: IS30400
Price: $39.95 (Subscribers to Congressional Research Report newsletter pay $19.97)