US: Current account deficit is not a “problem” - Wells Fargo

According to analysts from Wells Fargo, the modest current account deficit that the United States is incurring is not a “problem,” at least not from a purely economic standpoint.

Key Quotes: 

“The U.S. trade deficit widened in November to its highest level in nearly six years. Because a current account deficit is caused by a shortfall of national savings relative to national investment, the red ink in the current account likely will widen further going forward due, at least in part, to recent tax legislation. The increase in federal budget deficits that is expected to occur, and which the tax cuts will probably compound, will cause the national saving rate to decline, everything else equal. On the other side of the saving-investment imbalance, the corporate tax cuts could lead to stronger investment spending, at least at the margin.”

“In our view, the modest current account deficit that the United States is incurring is not a “problem,” at least not from a purely economic standpoint. The country is having few troubles attracting the capital inflows that are needed to finance the deficit, and the dollar’s depreciation to date has been orderly. However, the bilateral trade deficits that the United States incurs with China and Mexico have not gone unnoticed in Washington, and wider deficits going forward could provoke a policy response from the United States. A trade war, should one develop, likely would have negative financial and economic consequences.”