As a percentage of GDP, the "trade deficit" is nowhere near a record, same as for the "budget deficit." Currency speculators are at play; some will win, some will lose. One thing is nearly certain: U.S. interest rates will rise as the Fed raises rates in lockstep with the U.S. economic recovery. This is a self-correcting mechanism: as U.S. interest rates rise, the dollar becomes more attractive relative to other currencies. In foreign currency markets, the "market" is supposed to correct imbalances. Our biggest imbalance is with China, so the dollar should fall relative to the RMB; however, the RMB is pegged to the dollar. So the deficit continues to grow and China is forced to buy dollars to maintain the peg. If and when China abandons the peg and lets the RMB float or pegs it to the Euro, then the market mechanism will solve the problem. Until then, we will continue to post large dollar value trade deficits.
What is your source for trade deficit versus GDP being worse than it is now?
I just did the calculations for the trade deficit versus the GDP from 1960 to 2003, and 2000-2003 were the worst four years in that time span, with 1987 and 1986 were fifth and sixth.
Here are my calculations:
Year Nominal Trade Trade Balance
GDP in Balance versus
$ billions $ millions GDP %
==== ======= ========= =====
1960 $526.40 $3,508.00 0.67%
1961 $544.70 $4,195.00 0.77%
1962 $585.60 $3,370.00 0.58%
1963 $617.70 $4,210.00 0.68%
1964 $663.60 $6,022.00 0.91%
1965 $719.10 $4,664.00 0.65%
1966 $787.80 $2,939.00 0.37%
1967 $832.60 $2,604.00 0.31%
1968 $910.00 $250.00 0.03%
1969 $984.60 $91.00 0.01%
1970 $1,038.00 $2,254.00 0.22%
1971 $1,127.00 -$1,302.00 -0.12%
1972 $1,238.00 -$5,443.00 -0.44%
1973 $1,382.00 $1,900.00 0.14%
1974 $1,500.00 -$4,293.00 -0.29%
1975 $1,638.00 $12,404.00 0.76%
1976 $1,825.00 -$6,082.00 -0.33%
1977 $2,030.00 -$27,246.00 -1.34%
1978 $2,294.00 -$29,763.00 -1.30%
1979 $2,563.00 -$24,565.00 -0.96%
1980 $2,789.00 -$19,407.00 -0.70%
1981 $3,128.00 -$16,172.00 -0.52%
1982 $3,255.00 -$24,156.00 -0.74%
1983 $3,536.00 -$57,767.00 -1.63%
1984 $3,933.00 -$109,072.00 -2.77%
1985 $4,220.00 -$121,880.00 -2.89%
1986 $4,462.00 -$138,538.00 -3.10%
1987 $4,739.00 -$151,684.00 -3.20%
1988 $5,103.00 -$114,566.00 -2.25%
1989 $5,484.00 -$93,141.00 -1.70%
1990 $5,803.00 -$80,864.00 -1.39%
1991 $5,995.00 -$31,135.00 -0.52%
1992 $6,337.00 -$39,093.00 -0.62%
1993 $6,657.00 -$70,195.00 -1.05%
1994 $7,072.00 -$98,379.00 -1.39%
1995 $7,397.00 -$96,265.00 -1.30%
1996 $7,816.00 -$103,942.00 -1.33%
1997 $8,304.00 -$108,178.00 -1.30%
1998 $8,747.00 -$164,868.00 -1.88%
1999 $9,268.00 -$263,252.00 -2.84%
2000 $9,817.00 -$378,344.00 -3.85%
2001 $10,100.00 -$362,692.00 -3.59%
2002 $10,480.00 -$421,735.00 -4.02%
2003 $10,980.00 -$496,508.00 -4.52%