The U.S. trade deficit is growing: factors influencing its growth
Investment bank Saxo Bank published a forecast for the near future on the state of the dollar. According to the document, the U.S. trade deficit exceeded $68 billion. This figure was the second-largest in history. Analysts of corporation do not exclude that the value can increase in the future, this process is influenced by programs to stimulate the economy and a number of reforms that the government promises to carry out in the tax system.
According to Saxo Bank, at the moment there is a weakening of control by the democratic forces over the political processes in the United States. Such a situation could lead to the emergence of massive fiscal stimulus, while at the same time limiting the possibilities for the implementation of corporate tax reforms. This could play into the hands of the bear market and its dollar traders. In this case, if the U.S. currency shows a slight increase in investment returns, and emerging market money gains momentum to recover, then the bearish trend will allow winning good amounts.
Analysts note the effect on the economy and currency positions of the measures that were introduced to stabilize the situation after the pandemic. As a result the trade deficit has grown significantly and if the government does not revise the current policy, then the situation will continue to worsen. The fact is that now the main point is the purchase of imported manufactured goods, primarily from China. This allows the yuan to strengthen and the dollar to weaken. In 2020, PRC currencies have performed well, while U.S. money has shown fragility. The same situation may be repeated in the future, so the goal of the U.S. authorities is to compensate for capital outflows. One solution is to increase the inflow of funds, although this step has a drawback. It may lead to foreign trade imbalance, which will have a negative impact on the dollar and its position as a reliable asset.
Another threat to the U.S. currency is the digital yuan, which the Chinese authorities are actively introducing for trade transactions.
Investors and market participants still have high hopes for the U.S. Treasury, but confidence can be undermined by a number of factors. Among them are negative interest rates, as well as an increase in tangible assets and a decrease in investor activity.
The dollar retains its position as the world’s reserve currency, but the yuan intends to displace it, for which it is actively expanding the use of China’s digital currency. We should also not forget about the euro, which slowly but steadily shows its growth in the world market. In any case, the dollar has many risks, which, according to Saxo Bank, should be taken into account today.