Has the Trade Deficit Become America’s Economic Handicap?

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The imbalance between U.S imports and exports has hit an 18-month high. It is not just that the demand for American goods overseas is falling, but that domestic consumption is being met by importing more from overseas. One question most economists are asking now is this: Will the rising imbalance thwart economic recovery?

The U.S. current account deficit — the net earnings from the import and exports of goods, services, and foreign investments — rose 2.6 percent to $111.2 billion from $87.3 billion in the fourth quarter of 2013, the highest rise in about a year and half, quarterly data released by Bureau of Economic Analysis of the U.S. Department of Commerce showed.

Demand for U.S.-made goods and services continues to be sluggish, as markets in Europe and Asia are meeting the consumer demand by providing cheaper substitutes. These firms are able to maintain healthier margins thanks to cheaper cost of labor. U.S exports of goods shrunk to $399.7 billion from $407 billion in the previous quarter. Exports are down 0.2 percent in the first quarter.

In what could be a concern for U.S. economic growth, the decline in exports is widespread. Everything from wheat, grains, soy, vegetables, fruits, and nuts to energy products like oil and gas and automotive vehicles and parts makes the list.