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Current Record Account Deficit Shrinkage Due to Favorable World Import/Export Trends

October 1st, 2013 | by Morris Beschloss | Comments

While most casual observers that view the ebbs and flows of the U.S. trade deficit are familiar with the long term annual negative that had exceeded $780 billion just prior to the international financial breakdown in 2008, the current account deficit, which the Commerce Department publishes quarter-annually, includes not only goods and services, but indicates the value of intellectual property exchanges, currency re-evaluations, and tourism benefits. Also included are government grants, as well as multi-national transfers, on which values can be ascertained.

The 2013 year’s second quarter current account deficit of $98.9 billion was the first time that the quarter-annual current account deficit has dipped under $100 billion in recent memory.

Although the trade and current account deficits do not significantly register with the sensitive investment community, they represent the closing of a gap that was on the way to reaching close to one trillion dollars annually in America’s economic relationship with the rest of the world. The negative trend actually started in the late 1950′s, after the Marshall Plan had rebuilt the economies of Germany and Japan, as well as the victorious, but bankrupt allies.

This put these nations back into the world economic trade ball game, enough so to restart their industrial infrastructure in competition with the U.S. This was greatly enhanced in the late 1970′s and 1980′s as Japan gave the U.S. a major run for its leading industrial position, both worldwide as well as putting plants right into America’s own backyard.

As if this wasn’t enough, the so-called developing world woke up. With the leadership of China, India, and lesser newcomers such as Vietnam, Indonesia, the Phillippines and others, added to the shift that made the U.S. increasingly less competitive on the world scene. The significant change that has occurred in the last few years is the closing of the cost gap (industry, wages, transportation and inventory building factor by distributors) as well as the far greater concern with quality, to which “Made in U.S.A.” has returned to the top rung. This is especially true as major foreign-made components have been embroiled in catastrophic accidents traced to imports in the recent past.

But leading the pack in America’s favor, is its increasingly successful route to “energy independence.” This had achieved as high as 25% of America’s imports less than 20 years ago, a percentage that is rapidly declining toward zero at the present pace by 2020. With all its other problems to contend with, the latest current account deficit reflects a major shrinkage victory in the making.
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