Assessing the Impact of America's Trade Deficit
STEVE INSKEEP, host:
The US trade deficit grew in August to its third highest level on record. The Commerce Department reported today that US imports increased by 1.8 percent. Imports now outpace exports by almost $60 billion.
RENEE MONTAGNE, host:
David Wessel is deputy Washington bureau chief for The Wall Street Journal.
Good morning, David.
Mr. DAVID WESSEL (The Wall Street Journal): Good morning, Renee.
MONTAGNE: Why does the US buy so much more from abroad than the rest of the world buys from us?
Mr. WESSEL: Well, partly because we have such a big and fast-growing appetite for everything, particularly imports, and everybody else wants to sell in our market, which is huge, and compared to a lot of other countries, open to imports from abroad. It's easy to sell here for foreigners and it's attractive.
At the same time, much of the rest of the rich country world is growing rather slowly. Their appetite for stuff simply isn't as big as ours, and so as an economy the United States simply consumes more than it produces. That extra demand has to be met somewhere. It's met by importing from overseas.
MONTAGNE: When the US buys more abroad than it sells abroad, how in the sort of big picture does it pay for it?
Mr. WESSEL: We're very lucky. The United States is a country that has a currency, the dollar, that everybody wants. Everybody takes our dollars, and then they lend them back to us, more than $2 billion every day now, and that lending from abroad helps keep our stock market up, it helps keep our interest rates, particularly our mortgage rates, low.
MONTAGNE: So is there a problem?
Mr. WESSEL: Well, there isn't a problem right now, and certainly not for the US. It's a good deal when the rest of the world wants to lend you unlimited amounts of money at low interest rates. A paper done by a couple of economists at the Fed recently said that if the foreigners stop buying US bonds of all sorts, mortgage rates would be 1 1/2 percentage points higher. It's sort of like using your credit card, you know. In the beginning it's great. You can spend more than you earn. But you can't keep going on forever. If the US economy were in for credit counseling, the advice would be, `You're in pretty good shape, but you're living beyond your means.' Essentially the US every year is spending 6 percent more than it earns, and that gap is growing over time, and that simply can't go on forever. Really, the question is: Does it end with a bang or does it end with a whimper?
MONTAGNE: And what would your answer be?
Mr. WESSEL: Well, most of the time these sorts of imbalances resolve themselves without big crises. Most of the time the world economy muddles through with a little give here and a little take there. But you can't be sure of that, and it's particularly tough when it requires all sorts of people and all sorts of economies around the world to sort of do the right thing at the right moment. So the chance of a crisis is not huge, but it's uncomfortably large.
MONTAGNE: And, David, what would a crisis look like...
Mr. WESSEL: Well...
MONTAGNE: ...were it to come to that?
Mr. WESSEL: Well, a crisis in these terms means some big event in financial markets, a crash in the dollar that might lead to a crash in the stock market, which might force the Fed to raise interest rates in an inconvenient moment, and essentially it means a global recession. One sure way to get Americans to buy less stuff from abroad is to have a recession here, and if we buy less stuff from abroad and they're not growing very fast, then it's gonna be a global recession. That's the bad outcome. It's not the only outcome, and I don't think it's the most likely, but it's uncomfortably possible.
MONTAGNE: David, thanks very much.
Mr. WESSEL: A pleasure.
MONTAGNE: David Wessel is deputy Washington bureau chief of The Wall Street Journal.
INSKEEP: This is MORNING EDITION from NPR News.
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