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Causes and Consequences of the Trade Deficit: An Overview [i] (March 2000)

handle is hein.congrec/cbo06621 and id is 1 raw text is: CAUSES AND CONSEQUENCES OF THE TRADE DEFICIT: AN OVERVIEW March 2000 PREFACE in recent years, the U.S. trade deficit has grown very large by historical standards, prompting concerns that it is damaging or may pose a threat to the economy. The Senate Committee on Finance asked the Congressional Budget Office (CBO) to carry out a study of the trade deficit, its causes, and its effects on the economy. The committee also asked CBO to examine the effects of various federal policies on the trade deficit--especially those that might be considered to reduce or eliminate it. This memorandum summarizes the results of that effort. Bruce Arnold of CBO's Microeconomic and Financial Studies Division wrote the memorandum under the direction of Roger Hitchner, Robert Dennis, and David Moore. Helpful comments were received from Doug Hamilton, Juann Hung, Kim Kowalewski, Preston Miller, John Peterson, John Sabelhaus and Tom Woodward, within CBO, and from Paul Wonnacott of Middlebury College and Catherine Mann of the Institute for International Economics. Jenny Au prepared the figures. Sherry Snyder edited the memorandum, Leah Mazade proofread it, and Rae Wiseman prepared it for publication. Laurie Brown prepared the electronic versions for CBO's World Wide Web site (www.cbo.gov). Questions about the analysis should be addressed to Bruce Arnold. CONTENTS INTRODUCTION AND SUMMARY WHAT IS THE CURRENT-ACCOUNT BALANCE? WHAT CAUSES THE CURRENT-ACCOUNT DEFICIT? A Long Decline in Domestic Saving The Business Cycle Growth of Investment in the 1990s DO INFLOWS OF FOREIGN CAPITAL HARM THE ECONOMY?

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