The article analyzes the U.S. trade deficit by studying how changes in income and prices affect foreign trade flows. The researchers use a world trade model to estimate income and price elasticities for imports, test for different factors affecting trade imbalances, and assess the impact of exchange rate changes on U.S. net exports. They find that changes in prices mainly drive the U.S. trade deficit, and that relying on foreign or domestic growth to fix it would have significant effects on real income. The speed at which U.S. net exports respond to exchange rate changes depends on small changes in price elasticities.