The US trade deficit widened 3.2% to $50.5 billion in November. It was the largest trade deficit in almost 6 years. If you take oil out of the equation, the trade deficit hit an all-time high. If oil prices keep rising and the dollar keeps falling, it will put even more pressure on the US trade deficit.
In theory, a weakening dollar should help the trade deficit because it makes US products more competitive. As foreign products become more expensive, consumers can just substitute domestic alternatives. But as Peter pointed out, it doesn't work that way in practice. Americans don't have that ability to substitute. There are no domestic alternatives to many of the products they import because America doesn't make them anymore. So, if the dollar goes down, it simply forces Americans to pay higher prices for imported products.
On the flip side of the equation, the weakening dollar doesn't help exports either. You have to produce something before you can export it.
So, if we're not producing the goods foreigners want to buy, the fact that the dollar is cheaper doesn't help our exports. So, this is going to compound the problem for the trade deficit."
Peter turned to the tax cut plan. The GOP admits it will add about $1.5 trillion to the deficit. But Peter reiterated what he said last month - the deficit will likely grow even bigger as people reorganize their affairs to take advantage of loopholes built into the plan.
- Source, Seeking Alpha
