Analyzing Trends in the US Balance of Payments from 2010 to 2016

This report analyzes the United States' Balance of Payments (BOP) between 2010 and 2016, addressing the puzzles and real-world international finance issues that impact the US economy. It examines the trends in both the current account and the capital/financial account, utilizing statistical data, theoretical frameworks, empirical evidence from journal articles, and market examples. The analysis investigates economic factors contributing to changes in BOP balances, such as trade deficits, profit shifting by multinational corporations, and income inequality. The report also considers the impact of government policies, including trade restrictions and monetary actions, on the BOP. The study concludes by highlighting the importance of resource development and trade policies for improving capital accounts and addressing income inequalities within the US economy.

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Macroeconomics
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MACROECONOMICS
Introduction
In the modern financial world, lots of puzzles are happening on daily basis. These
kinds of activities are actually shaking the level of world production ability. In the country
like US, the trade deficit is one of the biggest issues. After the World War II, a new monetary
system in the name of Bretton wood was formed and the main thing that the Bretton wood
was that they claimed dollar as the international currency. The exchange rate of the gold is
around $35 per ounce. However, in 1960, the expansionary growth in US demand and the
collapse of Bretton wood actually forced many countries doing trade with US to exchange
dollars with gold that forced the gold reserve of the country to deplete. Both the current
account and the capital in the US has started to fall. This has forced the US government to
change their exchange rate quite a number of times. In order to provide the remedies for the
trade deficits, the country has been taking steps in the form of trade restrictions and other
monetary actions.
Discussion
Concepts regarding BOT and BOP
Balance of trade is mainly looking at the development of better trade scenario in the
economy of US. Due to increasing demand of the US gold as securities making it more
fragile. However, it has been seen that US trade deficit is going deep and the balance of the
payments are going aligned with the trade balance. The increased amount of asset holdings
and decreased yielding of the assets is one of main reason that is highlighting the trade
deficit.
Trade deficit
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Trade deficit is mainly due to the development of the failures that mainly happens in
the economy due to the situation when export earning is smaller than import spending.
However, in case of US, due to the shift of the profit factors, the US economies are going
back and receiving slow growths in the economies. Due to the trade deficit the US economy
is not getting any kind of business and the innovation is not getting any kind of business
drives.
Analysis of BOT and BOP
According to Clausing (2016), the gross income of United States is showing how the
multinational firms and their affiliated business in abroad are earning their incomes. In order
to make an improvement in the balance of payments countries like Netherlands, Ireland,
Luxembourg, Bermuda, Switzerland, Singapore, and UK Islands are taking the policy of
effective tax rates in order to increase more number of investments in the economy. Through
the development of the tax rate the capital account and current account of the above
mentioned countries are improving. Through the implementation of effective tax rates, the
countries accounts about 50.1% in the foreign profits and about 52.3% of the direct
investment rates.
Figure 1: Earning from foreign profits and direct investments
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(Source: Clausing, 2016)
From the above figure, Netherlands is having more income from the direct
investments earning. In most of the financial analysis, the relationship among the economic
activities that are happening within the economy is entirely depending on the geography of
the country. Due to semi elasticity property of the revenue generation and the tax rates
prevailing in the foreign countries are helping in the diminish tendency of the Balance of
payments. Due to this features, most of the US affiliated companies are not being able to
generate huge amount of profits. On the other hand, as opined by Clausing (2016) the
revenue costs for the US government from profit shifting is increasing by huge margin. The
revenue increased to $111 million from $77 million over 30% of the business profits.
Stiglitz (2016) opined that in country like US, government is not focussing on the
development of banks that are mainly helpful for the development of the small and medium
scale industries. In US, the FED government are taking the initiative to increase the
investments on the big banks that will increase their innovative technologies. Through most
of these banks are not at all significant for the small and medium scale industries, but
however, the contributions that these banks does on the SME is highly significant in nature.
Most of the economists in the United States have claimed the fact that government should
increase the channels of investments by improving the credit channel. This will increase the
investments that will help the economy in building better technologies than just increasing
the price of the assets that will create investments bubble. The increasing amount of
underinvestment by the government in the development of research wings are actually
making the scenario of BOP stickier compared to any other country.
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Year
Current Account Balances for US(BOP US$)
in billion
2010 -431.271
2011 -445.667
2012 -426.83
2013 -348.803
2014 -365.193
2015 -407.769
2016 -432.874
Table 1: Current account balance for US
(Source: Data.worldbank.org, 2019)
2010 2011 2012 2013 2014 2015 2016
-500
-450
-400
-350
-300
-250
-200
-150
-100
-50
0
Current Account Balances for US(BOP US$) in
billion
(Source: Created by Author)
The above diagram is showing that current account balance for US is actually
decreasing from the time period of 2010-2016. Most of the available data of current account
balance is basically showing negative values so that the development of the pressure on the
monetary and fiscal policy in US is actually increasing. In the whole period, the government
of US did not tried to increase the negative trend of the current account balance. Through the
incorporation of the current account, the monetary valuations of all the goods and services
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that are being provided by the US economy is not increasing. Due to underpayment initiaves
that has been taken by government, the investment is not increasing that is getting clearly
reflected by the diagram above. Through the development of the investment, it is important to
open the trade and commerce that will obviously improve the current account.
Year
Capital Account Balances for US (BOP US$)
in billion
2010 -158000000
2011 -1.186
2012 6.904
2013 -413000000
2014 -46000000
2015 -43000000
2016 -59000000
Table 2: Capital account balance of US (2010-2016)
(Source: Data.worldbank.org, 2019)
2010 2011 2012 2013 2014 2015 2016
-450000000
-400000000
-350000000
-300000000
-250000000
-200000000
-150000000
-100000000
-50000000
0
50000000
Capital Account Balances for US (BOP US$) in billion
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Figure 2: Capital account balance of US (2010-2016)
(Source: Created by Author)
The above diagram is showing the dipping of the capital account balance trend in US.
Along with the current account, the capital account balance are increasing the development of
depletion. The overall capital balance is getting reflecting the importance of the monetary
transactions that is not happening within the economy. On the other hand, it is important for
the whole economy to increase the development of the resources that will bring innovative
technologies. Through better investment opportunities the country will be opening up more
and will develop their internal and external conditions.
Salacuse (2017) opined that in the economy of United States, many bilateral treaties
has been signed to increase the trade and commerce with the country. During the early phases
of development, US government has signed many treaties in the form of treaty of friendship,
commerce and negotiation, in order to increase the development of the business. These
treaties were generally designed to increase the investments that are to be made within the
economy but however, after the World War I, the US economy started to focus more on
developing military equipment that has automatically increased the depletion of capital
resources. On the other hand, in order to increase the investment opportunities government
should indulge into the development of trade and commerce. Through the development of
better trade and commerce it will be important to increase the development of better
technologies. In order to increase the investment of the whole country, the government need
to increase the open trade and commerce that will increase the development of trade. The
government need to increase the trade and commerce so that the United States economy will
be able to grow and develop their economic activities.
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Saez and Zucman (2016) opined that in the country of United States, the income and
wealth inequality has increased by huge amount in the last few decades. Through the
development of technological up gradation the economy will continue to face continuous
innovation and the economy will be facing huge income inequality. Most of the increase in
the income inequalities has been done by the increasing income of rich peoples. The income
inequality in the country in 1967 was around 7% in 1978 to 22% in 2012. About 160,000
families in the country is having more than $20 million net assets in 2012. During the period
of 1986-2012, the average growth in the family was accustomed by 1.9% for the bottom 90%
and the top 0.1% of the families received growth of around 5.3%. Due to this increasing
amount of income inequality, the US economy was not being able to increase the growth of
their economy and the failure was getting reflected by the decreasing capital account
balances. Through this the economy will not be able to increase the resource allocation that
will give rise to efficient level of the production. This is true for most of the developed
countries as the government is focussing on the shift of the profit and is basically moving on
the development of military and other effective innovations. This will be helping in the
development of the business that will improve the business.
Reasons of trade deficit and remedies
It has been seen that due to the trade deficit some of the important reasons has been
highlighted the fact that are described below.
1) Due to sudden increase in the dollar values that has increased the price of all the
goods are increasing in nature. Due to this incorporation of the increased dollar
values, the price of other products is getting increased (Office, U, 1987).
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2) The government is increasing the consumption of the goods and services that has
increased the development of the economy and the imports increased by huge margin
compared to the exports.
In order to highlight the development of the trade and business, it is important to increase the
strategies that will increase the effectiveness of monetary policies. Through the development
of better innovations, in setting up the exchanges rates and gold values will be crucial for the
developments of the trade deficits.
Conclusion
The whole study is showing the fact that through the shifting of the profit, most of the
countries are facing similar experience like United States and they are facing deep problems
in their capital and current account. On the other hand, the development of resources will be
helpful for the development of better business that will automatically increase the capital and
will maintain the current account. In order to implement better policies the government will
be looking to increase the trade and commerce that will bring better innovations in the
investment that will not only indulge better income but will also indulge better information
about the wealth and income inequalities.
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Reference list
Clausing, K.A., 2016. The effect of profit shifting on the corporate tax base in the United
States and beyond.
Data.worldbank.org. (2019). Net capital account (BoP, current US$) | Data. [online]
Available at: https://data.worldbank.org/indicator/BN.TRF.KOGT.CD?
end=2016&locations=US&start=2010 [Accessed 7 Mar. 2019].
Office, U. (1987). International Trade: The U.S. Trade Deficit--Causes and Policy Options
for Solutions. [online] Gao.gov. Available at: https://www.gao.gov/products/NSIAD-87-135
[Accessed 9 Mar. 2019].
Saez, E. and Zucman, G., 2016. Wealth inequality in the United States since 1913: Evidence
from capitalized income tax data. The Quarterly Journal of Economics, 131(2), pp.519-578.
Salacuse, J.W., 2017. BIT by BIT: The growth of bilateral investment treaties and their
impact on foreign investment in developing countries. In Globalization and International
Investment (pp. 25-45). Routledge.
Stiglitz, J.E., 2016. How to restore equitable and sustainable economic growth in the United
States. American Economic Review, 106(5), pp.43-47.
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