Sunday, April 13, 2008

More Bad News for the US Economy

Source: Bloomberg, Associated Press

The US economy was delivered another does of bad news this week. February's trade numbers cast doubt on the one aspect of the US economy that was going strong: the trade deficit. The weak US currency had led to the slow shrinking of the trade deficit, but in February, the trade deficit spiked to 5.7%--the highest number since November.

While US exports increased due to higher demand of US-made heavy machinery, import levels rose to record highs in February. This was because more foreign-made cars, industrial machines, and pharmaceuticals.

Nevertheless, there is some good news in the trade report. The trade deficit with China dipped to the lowest levels in a year, and petroleum import deficits shrank for the first time in eight months. Furthermore, US exports increased in February and the American quarterly trade deficit has shrunk.

While trade news has been relatively positive over the past few quarters, the IMF is predicting that the US will experience a mild recession this year. The US economy has suffered from the housing crisis and a loss of jobs. February's negative trade report may be a product of what some economists have predicted: in light of the negative economy, trade will become less and less of a boost to the economy.

Question: Can the US imposes more restrictionist trade policies to better balance the trade deficit? If so, what could happen if other states also impose retaliatory trade

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