U.S. Trade Deficit With OPEC Widened Further

June 10, 2008

The deficit to OPEC increased 10.5% between March and April and by 67.8% in January-April from a year earlier. The $58.5 billion trade shortfall with OPEC in the first third of 2008 was roughly the same size as the combined deficits with Europe and Japan. 55% of incremental growth in the deficit to OPEC between January-April 2007 and January-April 2008 was offset by improved U.S. trade with the rest of the world. Dollar depreciation has fortified U.S. competitiveness with most economies. OPEC currencies, on the other hand, are generally fixed to the dollar, which means that the monetary policies, i.e. interest rates, of these countries are tied to the highly stimulative Fed stance. That stance has lifted U.S. inflation, which in turn is being imported in a vastly magnified degree throughout OPEC. If OPEC currencies were to be revalued against the dollar or allowed to float upward more freely, the hegemony of the dollar in reserve asset portfolios would be harmed. U.S. officials want to avoid this possibility and are not treating OPEC in the same way as China, whose officials continue to be pressed to let the yuan rise at a faster pace. The U.S. trade deficit with China jumped 25.9% m/m in April but was 1.6% smaller in January-April than a year earlier.


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