By the Numbers: The U.S. Trade Deficit; February 2000; Scientific American Magazine; by Doyle; 1 Page(s)
As an indicator, the trade deficit is most peculiar, for it is both a sign of prosperity and a portent of decline. For the past 25 years the deficit rose when times were good and fell during recessions. Exports provide jobs for almost 12 million Americans at above-average wages, while imports contribute to low inflation by offering a variety of goods at modest prices.
But the huge trade deficit, at a record-breaking quarter of $1 trillion in 1999, poses the threat of a large and sudden devaluation of the U.S. dollar if foreign holders become pessimistic about the American economy. That could result in higher prices for imported goods, leading to domestic inflation and, subsequently, to higher interest rates and a slowing of the economy's growth rate.