Chart: The relationship between the budget and trade deficits

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The latest #chartonthego shows the correlation between a growing government budget deficit and a widening trade deficit.

The twin deficits: budget and trade deficits are expected to increase
  • Deficit concerns: U.S. tax reform boosted economic growth but also increased the budget deficit.
  • The twin deficit hypothesis: This suggests that a growing government budget deficit and a widening trade (current account1) deficit go hand-in-hand. The government’s increased deficit stimulates the economy and revs up consumer spending, which reduces the national savings rate and causes the U.S. to borrow more from abroad.

 

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