Us Current Account Deficit Analysis Paper

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In addition, with the proposed policy of cutting corporate taxes from 35% to 15%, US is trying to entice the offshore businesses to go back to US leveraging on the lower operational cost leading to better profit margins. This results in an increase in the domestic production leading to ranges of goods. Likewise, the reduction in individual taxes will also increase the consumption of these domestic goods, improving economic activity.

The 2016 US current account deficit is at negative 3.2% of GDP (from Exhibit 3a). With all of Trump’s planned policies, the deficit is projected to get worse and be negative 5% by 2025. As an effect of this projection, it may be alarming for the foreign investors because it puts into question the ability of the US to repay their debts.

For a developed economy like the US, the current account deficit may be beneficial as it displays confidence of foreign investors to continually invest and increases the purchasing power of locals on imported goods. However, in the long run, foreign investment might be a curse as it has a superior hand in the trade deficit. Not having enough funds to pay back the high-interest payment would eventually harm the economy. Assuming the trade deficit will remain the same due to the continued borrowing from abroad to finance consumption of imports, it will result in the continued strain of the current account of the US economy.

Economics 2nd WAC, Prof. Manuela LT5 Bagadiong. Barraza. Chua. Fernando. Gyawali. Margallo. Reyes

References

Benedetto, John. “Who Financed Recent U.S. Trade Deficits?” Journal of International Commerce and Economics, www.usitc.gov/publications/332/journals/volume_vi_u_s_trade_deficit.pdf. Accessed 27 Sept. 2017.

Riley, Geoff. Balance of Payments - Current Account Deficits. www.tutor2u.net/economics/reference/balance-of-payments-current-account. Accessed 27 Sept. 2017.

Pettinger, Tejvan. What Causes the US Current Account Deficit.econ.economicshelp.org/2007/03/what-causes-us-current-account-deficit.html. Accessed 27 Sept. 2017.

Sri-Kumar, Komal . The Trump Trade Policies That Can Benefit Financial Markets. www.bloomberg.com/view/articles/2017-03-31/the-trump-trade-policies-that-can-benefitfinancial-markets. Accessed 27 Sept. 2017.

How will Trump’s Policies Affect the U.S. Economy. knowledge.wharton.upenn.edu/article/trumps-policies-economy-wharton-experts-weigh/. Accessed 27 Sept. 2017.

Why is President Trump attacking Foreign Investment in the United States? https://www.washingtonpost.com/posteverything/wp/2017/02/16/why-is-president-trumpattacking-foreign-investment-in-the-united-states/?utm_term=.61754d9413bb. Accessed 27 Sept. 2017.