International Finance and Financial Policy

By Hans R. Stoll | Go to book overview

the first set of measures leads to a decline in interest rates on U.S. dollar securities. Thus it is possible that the foreign interest rates will decline almost as much as U.S. dollar interest rates, so the interest rate differential remains largely unchanged. If saving and investment schedules in the Germanys and the Japans are largely insensitive to changes in interest rates within the relevant range, this traditional approach to reducing the U.S. trade deficit by securing a reduction in the interest rates on U.S. dollar securities may not prove very effective in securing a reduction in the U.S. trade deficit.

The alternative approach to reducing the U.S. trade deficit involves direct intervention at the national borders through a tax-subsidy arrangement or through a quota arrangement. These measures would be managed to secure an orderly reduction in the U.S. trade deficit. The list of possible measures is long. Thus the U.S. Treasury might auction investment licenses to foreigners. Or foreign producers might be permitted to sell in the U.S. market only if they demonstrate that they have purchased a requisite amount of U.S. goods. The choice among these alternatives would be made on the basis of administrative efficacy. And the decision to intervene directly would be justified on a second-best basis, primarily in terms of neutralizing the adverse effects on the United States associated with the failures of the adjustment mechanisms in the Germanys and the Japans to respond to their excess saving.


CONCLUSION

The U.S. trade deficit is imported, a result of the difference between the demand of Germany and Japan and six or eight other countries for trade surpluses, and the demands of Great Britain, Italy, Spain and a few other countries for trade deficits. Global consistency implies that the sum of trade surpluses correspond to the sum of the trade deficits. If some countries organize their policies to achieve trade surpluses, others will realize trade deficits. The U.S. trade balance more or less passively adjusts to the difference between the demand of the first group of countries for trade surpluses, and the willingness and ability of the second group to finance trade deficits. An analogy to the 1980s trade imbalance is provided by the persistent payments imbalances in the 1950s and most of the 1960s; for nearly 20 years the United States had payments deficits, because the demand of all other countries to add to their holdings of international reserve assets was significantly larger than the increase in the aggregate supply of reserves from non-U.S. sources.

This view that the U.S. trade deficit is imported differs sharply from the view based on the absorption-type analysis that the U.S. trade deficit reflects the large U.S. fiscal deficit or the low U.S. saving rate. This traditional view ignores that the U.S. economy operated with substantial excess capacity, at least until 1987; because of the presence of so much excess capacity the "consumption binge" explanation for the U.S. trade deficit is irrelevant. The increase in the U.S. trade deficit resulted from a surge in imports attributable to

-92-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited page

Bookmark this page
International Finance and Financial Policy
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this book
  • Bookmarks
  • Highlights & Notes
  • Citations
/ 260

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.