Deficits and the Dollar

This is Gwen Outen with the VOA Special English Economics Report.

Last week the Commerce Department reported on the United States
trade deficit in September. The United States imported almost
fifty-two thousand million dollars more in goods and services than
it exported. The deficit remains very high. But it fell in September
by almost four percent from the month before.

Imports decreased, while exports increased. Trade specialists say
American exports should continue to increase as long as the dollar
is weak. Basically, strong currencies help importers; weak
currencies help exporters.

In Europe, there is concern about the added cost of European
exports from the strength of the euro against the dollar. In the
past week it took about one dollar and thirty cents to buy one euro.

In China, the situation is different. China links the value of
its currency, the yuan, to the dollar. The set exchange rate keeps
down the cost of Chinese exports. American competitors are not happy
about this policy.

The trade deficit with China is expected to set a new record this
year. It was over fifteen thousand million dollars in September
alone. The second biggest deficit was with Japan, at six thousand
million dollars.

Countries that have a trade surplus with the United States
usually buy American government debt with the dollars they receive
in payment. This way, they earn interest on their investment. Japan
and China together own about one-fourth of the debt of the United
States Treasury.

Japan also buys a lot of Treasury debt with its own currency.
This means there is a lot of yen on world currency markets. This
keeps down the value of the yen, and the cost of Japanese exports.

Economists say the presence of a trade deficit does not mean that
an economy is doing poorly. In fact, some say trade deficits are not
very important. They are more concerned about record budget deficits
in the United States.

These economists worry that too much American borrowing could
harm the world economy. But other economists say world markets have
enough to lend.

Treasury Secretary John Snow says cutting the budget deficit in
half is a top goal of President Bush in his second term. Mister Snow
also says the United States supports a strong dollar. Speaking
Wednesday in London, he urged European countries to increase their
economic growth more quickly.

This VOA Special English Economics Report was written by Mario
Ritter. This is Gwen Outen.