If a substantial current account adjustment is required, how might it take place, and what might be its effects? As to the first of these questions, three mechanisms might induce a narrowing of the current account deficit. First, a fall of U.S. prices below foreign prices could raise our competitiveness.
Prices have become relatively stable, by historical standards, in the United States and its trading partners, however, and, it is not clear how much of a dent this could put in the trade deficit. A second possibility is that an increase of foreign growth above U.S. growth could boost our exports.