Dollar continues sinking but trade deficit keeps widing?

[Dinner]

http://news.bbc.co.uk/2/hi/business/7183403.stm

I'm curious why this is happening. Theoretically as the dollar sinks the cost of US made goods should go down and the cost of foreign made goods should go up so why are we seeing an ever widing trade deficit even as the dollar reaches record lows? Are Asian countries devaluing their currencies too, meaning this is the result of nonmarket forces, or is it just that so many companies have off shored that there isn't much left being made in the US?

[Whoha]

A little from column A, a little from column B. Just sinking the dollar won't have any effect on the trade deficit.

[Julian Delphiki]

Not a terribly good example, but it has been a long time since i've seen "made in usa" tag on anything that i own or have been buying. Only US products i've bought during the last year or so are CIV4, CIV4 Warlords & CIV BtS and sunflower seeds.

This is just a consumer view - i don't know about the trades of companies & industries.

[Saras]

maybe no one wants the stuff/services US makes/provides at any price?

[Dinner]

Exports were up 0.4% last month reported though imports were up even more. It seems like half of the imported stuff is coming from US companies but made over seas. Though I imagine the run up of oil prices and the government's refusal to do anything meaningful to offset demand has greatly added to the deficit.

[DanS]

This is a counterindicative reading. The trade deficit has been going down for a while now -- as a weak currency would make happen after a half year or so lag. Probably, this month's reading is just a blip having to do with a spike in the price of oil. But even if not, that just means the dollar will fall some more to make up the difference in the long run.

[DrSpike]

That's part of the answer - currency depreciations do (other things being equal) reduce current account deficits, but not immediately. Before the increased demand encouraged by cheaper exports kicks in you're selling the same stuff but cheaper, which worsens the position.

More importantly though is the caveat of other things being equal. The current account (which picks up trade in goods and services) is only one side of the equation, and if there is reduced demand for dollars in the capital markets (for investment etc) then a depreciating dollar and worsening (or perhaps not imporving as fast as you'd expect given the depreciation) trade balance can be consistent even over longer periods of time. That is in fact what's been happening.

[Perfection]

Originally posted by JulianD
sunflower seeds

Which brand do you get over there?

Are they salted in shell?

[Julian Delphiki]

No brands, they just import those in bulk and pack here, i don't remember seeing them sold salted anywhere.

[Perfection]

Oh, they're the best when salted!

Where I live they got this brand called "Giants" with sunflower seeds that are larger then your friggin' head.

[Julian Delphiki]

I'm sure they go well with beer

[DanS]

Another factor here is that the Dollar's decline relative to the Chinese Yuan is being controlled. China's allowing an annual appreciation in the Yuan versus the Dollar only in the single digit percentages.

This makes any adjustment in the US economy take longer.

[Zkribbler]

why are we seeing an ever widing trade deficit even as the dollar reaches record lows

Reason 1: Oil is now at $100/ barrel

Reason 2: We've sent out manufacturing jobs to China, so now when we want to buy stuff, we have to import it.

[thesilentone]

I've not studied economics for over 8 years now so i'm a bit rusty but surely as the value of the dollar decreases the real value of your debts is going to increase? Borrowing hasn't been slowing in the bush years either, it's been accelerating and I don't think any increase in exports will help cancel it out that much, not with the ever increasing amount of goods produced in china.

Edit: and as the previous poster pointed out, oil is getting more expensive and the US imports a huge amount of that.

[snoopy369]

Debts != trade deficit... deficit is a 'current' number, ie the October 2007 trade deficit, it's not a summation of debt (which certainly does rise relative to other currencies when the value of the currency it's expressed in drops) but a description of (Exports $ October 2007) - (Imports $ October 2007). The national debt is unrelated - that is a governmental figure, ie the amount the government owes others, not an economic figure, ie how our economy performed.