Why a dollar depreciation may not close the U.S. trade deficit

Dillon, Eleanor Wiske; Goldberg, Linda S.

Journal Article

Why a dollar depreciation may not close the U.S. trade deficit

Abstract: With the U.S. trade deficit at high levels, many look to a dollar depreciation to curb the U.S. appetite for foreign goods by pushing up the cost of imports. Yet three factors -- the use of the dollar in invoicing U.S. trade, the market share concerns of exporters, and sizable U.S. distribution costs -- could keep U.S. import prices from rising enough to reduce demand significantly. Evidence suggests that a weaker dollar will boost foreign demand for U.S. exports, but this adjustment by itself is unlikely to close the deficit.

Keywords: International finance; Imports - Prices; Balance of trade; Dollar, American; International trade;