WASHINGTON (AFP) - The whopping US trade and investment deficit is the result of a strong US economy and can be remedied by taking steps to boost growth elsewhere, a US Treasury official said.
The official, speaking to reporters ahead of Treasury Secretary John Snow's visit to Europe next week, said imbalances that have been weighing on the dollar are the result of sub-par growth in the economies of a number of US trading partners.
The official declined to comment on the level of the dollar -- which slumped to a record low against the euro this week -- but said Washington is doing its part to address the economic imbalances.
The comments appeared aimed at blunting criticism of Washington for the weak dollar and turning attention to economic issues elsewhere in the world.
"One of the reasons to have faster growth in countries which are not growing is to address imbalances," the official, who asked not to be identified, told reporters.
"If the US is growing more rapidly than other countries, then exports from the US are growing less rapidly than they otherwise would. So if you get more rapid growth in Germany or in other countries not growing as rapidly as they should, that will be beneficial to our exports and help with the reduction in the trade deficit."
The US current account deficit -- the broadest measure of trade and investment flows -- widened to a record 166.2 billion dollars in the second quarter.
The gap has weighed on the dollar and economists fear that if foreign governments and investors turn away from the US, it could cause a precipitous drop in the greenback that would send shock waves rippling through the global economy.
US officials have constantly argued that Washington is pursuing a "strong dollar" policy, despite concerns among some officials and experts that the US administration is content to allow the greenback to fall.
While the official said it is up to Snow to articulate views on currency matters, he said there was no hidden agenda.
The US official said Washington is doing its part to encourage savings and address the US budget deficit, which also requires foreign capital flows, and argued that other countries should do more as well.
The official singled out Germany as a country with persistently slow growth over the past decade. He said efforts to press China to adopt flexible currency policies also may help ease imbalances.
"The policies of the United States are to encourage stronger economic growth around the world," the official said.
"While growth has increased, it still could be stronger in countries where growth is weak right now. We really would love to see Germany grow more rapidly."
Economists say both the US and its trading partners share the blame for the imbalances.
"This is a global problem, and the United States deserves only part of the blame," said Morgan Stanley economist Stephen Roach.
"In the zero-sum world of trade flows, every deficit has a surplus on the other side of the ledger."
Roach said the dangers are growing from this unbalanced situation.
"In order to prevent their currencies from rising and thereby putting pressure on competitiveness, surplus nations have recycled massive reservoirs of foreign exchange reserves back into dollar-denominated assets in order to support the US dollar," he said.
"That is the functional equivalent of a subsidy to US interest rates -- further fueling the voracious appetite of already over-extended and saving-short American consumers. In essence, that's the basic conundrum of today's unbalanced global economy."
But Merrill Lynch economist David Rosenberg said the dollar correction may be ending, which could ease some concerns elsewhere in the world.
"With the overseas economies beginning to weaken ... we're not so sure that the consensus has the right call any more on the direction of the dollar from here," he said. "Whether it's the seventh, eighth or ninth inning of the dollar bear market, it's late in the game."
11/13/2004 - 08:22 GMT - AFP