Brother, Can You Spare a Dime? Financing the U.S. Current Account Deficit

Executive Summary

The U.S. current account deficit widened to a nine-year high in 2017, and we expect that the red ink will climb further going forward. Fortunately, foreigners remain willing financiers of the American current account deficit. FDI inflows exceeded $300 billion for the third consecutive year, and foreign net purchases of American securities jumped to their highest level since the record year of 2007. We look for modest dollar depreciation in coming quarters. But a full-blown rout of the greenback does not seem likely, unless something happens that leads foreigners to significantly reassess American economic prospects in coming years.

U.S. Current Account Deficit Reached Nine-Year High in 2017

Recently released data show that the red ink in the U.S. current account totaled $466 billion in 2017, the largest deficit in nine years (Figure 1). The gaping deficit in international trade in goods ($811 billion) was partially offset by a sizeable surplus in international trade in services ($243 billion). In addition, the United States had a surplus in its primary income balance. That is, the income that Americans earned on their overseas investments last year exceeded the income that U.S. households, businesses and government needed to pay to foreigners on their American asset holdings by $217 billion. The United States also had a modest deficit ($145 billion) in its secondary income balance (e.g., unilateral government transfers to foreign economies, workers’ remittances, etc.).

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