U.S. Trade Deficit Swells to Record $55.5B

We now have the largest trade deficit in the history of the United States (Link to Story). Some claim that the weakening dollar will help alleviate the problem. It should give a slight boost to American exports, but it also has its drawbacks.

First, when the dollar is weak, importing goods from overseas is more expensive. That affects us in two ways. It increases the price of everything you buy at Wal-Mart and other retailers who purchased their retail goods from overseas. It also affects manufactures in the U.S. who get their raw materials from overseas. This makes almost everything sold to the American consumer more expensive, thus, causing inflation.

Second, the weakening dollar only hurts us for our biggest trade gap, imported oil. The weaker the dollar, the more it costs to buy a barrel of oil, and ultimately, a gallon of gas or heating oil. This also drives inflation.

So, the way to shrink the trade gap is two fold. First, China needs to let their currency float (meaning, let the free market system determine its value - it value is currently set artificially low by the Chinese government). Secondly and more importantly, we need to get off our addiction to imported oil. Oil is a product that we can never produce and will always have to import. Opening up ANWAR will not solve our problem. The best guess estimates put ANWAR production at 1-2% of our daily consumption. We need to find alternative energy sources so we can produce our energy at home and stop sending our money to the Middle East where it finds it way into the hands of terrorists.