International Trade:

The U.S. Trade Deficit--Causes and Policy Options for Solutions

NSIAD-87-135: Published: Apr 28, 1987. Publicly Released: Apr 30, 1987.

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In response to a congressional request, GAO: (1) examined the causes of the increased U.S. trade deficit; and (2) discussed ways to reduce the deficit.

GAO found that: (1) the most important cause of the increased U.S. trade deficit was the sharp rise in the value of the dollar, which caused the prices of U.S. goods to rise compared to the prices of foreign goods; (2) the strong U.S. economic recovery caused U.S. consumption of goods, including imports, to rise, while the Latin American debt problem curtailed U.S. exports; (3) although foreign trade barriers reduced international trade, they did not account for the huge increase in the U.S. trade deficit after 1980; and (4) U.S. products became less competitive due to the rise of the value of the dollar, rather than decreases in productivity. GAO believes that: (1) a lower U.S. budget deficit would help reduce U.S. interest rates, lower the value of the dollar, and lower the trade deficit; (2) the U.S. trade deficit would also fall if the industrial countries eased their economic policies and other countries allowed their currency values to rise; (3) U.S. efforts to open foreign markets and remove foreign trade barriers should continue; and (4) U.S. industries should continue productivity and product quality improvements to increase competitiveness.

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