Trade deficit - new twist. Reuters reports that:
Economists surprised by the failure of the dollar's three-year slide to narrow the U.S. trade deficit are increasingly focusing on the growing presence of multinationals in global commerce.Now we feel better.
Research by the McKinsey Global Institute suggests roughly one-third of the U.S. current account deficit results from trade with U.S.-owned subsidiaries abroad.
This is a major reason why the dollar's broad-based slide on global foreign exchanges over more than three years hasn't narrowed the U.S. trade deficit, as conventional economic theory suggests it should.
The dollar has lost around a third of its nominal value against a basket of its major counterparts since January 2002, which should have made U.S. exports nominally cheaper and imports more expensive.
Yet U.S. consumers' voracious appetite to consume has seen the trade deficit balloon to new record after record.
"In our view, significant dollar depreciation is required simply to prevent further deterioration in the current account deficit," wrote Deutsche Bank's New York-based currency startegy team in a recent research note.