faster than America's exports). So if all countries were growing at the same speed and exchange rates remained stable, America's trade deficit would worsen inexorably. To stop the deterioration, the American economy would have to grow more slowly than others, or the dollar would have to fall This phenomenon has long perplexed economists should America be more addicted to imports than other countries? For a long time economists thought it must Opening too wide have something to do with trade barriers abroad that America s trade in goods and services, Strn prevented American exports from flourishing. But trade barriers at least in the rich world have been lowered Impor substantially since the 1960s TRADE Another theory, pioneered by Paul Krugman in the late 1980s, is that Americans'apparent love of imports Exports reflects the growing array of products made by countries that export to America. For any given rise in income, America's import demand is not abnormally high, he argued. Rather, it is the supply of exports from fast 1111 199394959697989920000102 growing supplier regions, such as East Asia, that has Source: US Bureau of EconomIc Analysis Another explanation points to the high levels of immigration into America. Immigrants goes the argument, have a particular penchant for goods from their own country Thus imports in a country with lots of immigrants will be relatively higher than elsewhere Lastly there is the possibility that the relationship between growth and imports shifts as economies develop. Catherine Mann, from the Institute for International Economics, finds that the predilection for imports is much less pronounced in services than in goods. That suggests America's import bias will become less marked as the share of services in the global economy becomes ever larger. For the moment however, the import bias remains. In a detailed re-estimation of the statistics in 2000, three economists at the Federal Reserve, Peter Hooper(now at Deutsche Bank),Karen Johnson and Jaime Marquez, found that America's imports rose 1.8% for every 1% increase in overall spending. A 1% rise in foreign demand in contrast produced a less than proportional 0.8% rise in American exports This lopsidedness together with the sheer scale of America' s current-account deficit, means that tackling it will be tricky. Unless other countries grow substantially faster, relative to America, than they do now, the bulk of any adjustment will depend on a depreciation of the dollar Down with the dollar Back in the world of economics textbooks a fall in the exchange rate improves the trade balance in two stages. First the cheaper dollar increases the relative price of Japanese cars French wines and Italian holidays. Cars from Detroit, chardonnay from California or trips to Disney World, in contrast become relatively less expensive. Second, this shift in relative prices encourages Americans to spend less on imports while boosting American exportsfaster than America's exports). So if all countries were growing at the same speed, and exchange rates remained stable, America's trade deficit would worsen inexorably. To stop the deterioration, the American economy would have to grow more slowly than others, or the dollar would have to fall. This phenomenon has long perplexed economists. Why should America be more addicted to imports than other countries? For a long time, economists thought it must have something to do with trade barriers abroad that prevented American exports from flourishing. But trade barriers, at least in the rich world, have been lowered substantially since the 1960s. Another theory, pioneered by Paul Krugman in the late 1980s, is that Americans' apparent love of imports reflects the growing array of products made by countries that export to America. For any given rise in income, America's import demand is not abnormally high, he argued. Rather, it is the supply of exports from fast￾growing supplier regions, such as East Asia, that has been rising. Another explanation points to the high levels of immigration into America. Immigrants, goes the argument, have a particular penchant for goods from their own country. Thus imports in a country with lots of immigrants will be relatively higher than elsewhere. Lastly, there is the possibility that the relationship between growth and imports shifts as economies develop. Catherine Mann, from the Institute for International Economics, finds that the predilection for imports is much less pronounced in services than in goods. That suggests America's import bias will become less marked as the share of services in the global economy becomes ever larger. For the moment, however, the import bias remains. In a detailed re-estimation of the statistics in 2000, three economists at the Federal Reserve, Peter Hooper (now at Deutsche Bank), Karen Johnson and Jaime Marquez, found that America's imports rose 1.8% for every 1% increase in overall spending. A 1% rise in foreign demand, in contrast, produced a less than proportional (0.8%) rise in American exports. This lopsidedness, together with the sheer scale of America's current-account deficit, means that tackling it will be tricky. Unless other countries grow substantially faster, relative to America, than they do now, the bulk of any adjustment will depend on a depreciation of the dollar. Down with the dollar Back in the world of economics textbooks, a fall in the exchange rate improves the trade balance in two stages. First, the cheaper dollar increases the relative price of Japanese cars, French wines and Italian holidays. Cars from Detroit, chardonnay from California or trips to DisneyWorld, in contrast, become relatively less expensive. Second, this shift in relative prices encourages Americans to spend less on imports while boosting American exports