Balancing the U.S. Trade Deficit Is No Easy Task
Friday, January 19th, 2007
By George Leong, B.Comm. for Profit Confidential
I have talked about the rising trend of the U.S. trade deficit in the past. While the government and many U.S. manufacturers may not like it, the American consumer is clearly benefiting from lower prices at the cash registers. The rising trade deficit remains a very hot issue in Washington.
Washington is clearly not happy about the release of U.S.-China trade data that showed the U.S. trade deficit with China at an all- time high of $214 billion as at the end of November, well ahead of the $202 billion reported for all of 2005.
The Bush administration is clearly in the hot seat. While free trade on a global basis is desired, the administration continues to face criticism in its dealings with China.
Pressure is mounting on Beijing to allow more flexibility in the yuan, which recently traded at a record post-revaluation high of 7.7935 to the dollar. U.S. Treasury Secretary Hank Paulson will try to persuade China to allow the yuan to strengthen, but, if this does not materialize by mid-year, speculation is that Congress will go ahead and enforce higher tariffs on Chinese imports. Of course, the problem with this is that the move would also increase the price of many goods in the U.S., thereby threatening to slow down key consumer spending and reduce disposable income for Americans, especially those in lower tax brackets who benefit from cheaper goods.
As I’ve said in the past, there is a tradeoff here. The unfortunate loss of jobs in the U.S. manufacturing sector is not easy to accept, but, at the same time, consumer hungry Americans are paying less for many goods, including clothing, electronics, and food. This also helps many U.S. businesses. Washington must not lose sight of this when working on its trade policies.
The strategy to control the trade deficit will need to be carefully thought out. Washington must balance the trade deficit with the lower costs paid by American consumers.
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
