Imports and exports of U.S

Question

Give some remark over the given statement: “As imports of the U.S. is more than its exports, it is essential for U.S. to import the capital from foreign countries in order to finance its current account deficits.”

Answer 1

Statement presumes that the U.S. current account deficit makes surplus capital account. Certainty, causality may be running in different direction: Surplus capital account of the U.S may results in country’s current account deficit. Suppose foreigners find U.S. a grand place for investing and drive their capital to the U.S., causing in the U.S. capital account surplus. This inflow of the capital makes the dollar strong, throbbing the U.S. export and encouraging imports from  the foreign countries, resulting current account deficits.