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Balancing the Federal Budget and U.S. International Trade Deficits

Michael A. Akhtar
Business Economics
Vol. 32, No. 4 (October 1997), pp. 24-28
Stable URL: http://www.jstor.org/stable/23487544
Page Count: 5
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Balancing the Federal Budget and U.S. International Trade Deficits
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Abstract

Eliminating the federal budget deficit, even assuming a correspondingly higher national saving rate, is likely to yield only a modest reduction in the U.S. international trade deficit. Balancing the federal budget will help improve the trade balance through the effects of lower levels of aggregate demand. But it will almost certainly not cause a large switch of U.S. and foreign demand from goods produced abroad to goods produced in the United States. Such a shift of demand toward U.S. goods seems necessary to close the trade gap over the medium term and will be difficult to accomplish in the face of the trade competition between the United States and low-wage, export-oriented economies, and high international capital mobility.

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