U.S. Trade Gap Widens on Surging Imports

The Impact of Import Goods on GDP

The criteria used to measure economic growth are time-bound, with one of the timelines being each quarter of the year. The preceding post was written on May 5th, 2015, just one month after the end of the first quarter, a time when economists and Wall Street experts examine economic growth trends and make predictions for the remainder of the year. Eric Morath wrote the article in response to the a report by the Commerce Department on trade deficits as well as the release of GDP growth estimates of the year 2015 by JP Morgan and Deutsche Bank DB. The report was also inspired by the rise of import goods especially in the West Coast amid a strong dollar in comparison with other major currencies.

The Contraction of GDP due to Imports

According to Morath (2015), the influx of import goods led to the contraction of GDP by 0.5 %. The primary cause of the contraction was the state of the United States doing business with countries that had weaker currencies while the dollar kept on strengthening. A strong dollar reduces the size of the exports as slow economies in Europe and Asia lower demand of U.S goods. The result was a rise of imports by 1 % and a reduction of exports by 3 %.

Reports on GDP Contraction

The impact of the above developments was further supported by the release of reports by forecasting firm Macroeconomic Advisers, JP Morgan, Deutsche Bank DB and the Commerce Department, all of which showed contraction of GDP by not less than 0.4 %. However, Morath further explains that the slow start to the year is to be expected given previous trends. For example, there was a slow start to GDP growth as a result of rising imports in the start of 2014, but the economy grew at a steady pace for the rest of the year. Therefore, the article predicted GDP rise for the rest of 2015 which could be evident by expected rise in the number of new jobs created in the economy.

Global Economic Challenges and Domestic Growth

One can conclude that it is an evident theory of economy that ultimately, domestic growth does not benefit the nation as long as other economies are weak and negative GDP growth is also a result of global economic challenges. Also, it is not uncommon for the GDP to contract at the beginning of the year as a pace setter for radical growth for the rest of the year. Favorable forces of demand and supply in the global sphere are as crucial to the nation’s economic growth as domestic developments of the same. As the dollar grows, economists must come up with strategies to grow other currencies as well.

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