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Wednesday, August 4, 2010

U.S. International Trade: Trends and Forecasts

Dick K. Nanto
Specialist in Industry and Trade

J. Michael Donnelly
Information Research Specialist

The U.S. trade deficit had been decreasing through June 2009 because of the global financial crisis but since February 2010 has begun to increase again. The financial crisis caused U.S. imports to drop faster than U.S. exports. The global simultaneous recession, however, implies that exporting countries cannot rely on increased foreign demand to make up for slack demand at home. Even though U.S. imports have been down considerably from 2008, companies competing with imports still face diminishing demand as the domestic economy has been slow to recover from the recession. These conditions imply that the political forces to protect domestic industry from imports are likely to intensify both in the United States and abroad.

In 2009, the trade deficit in goods reached $506.9 billion on a balance of payments (BoP) basis, less than the $834.7 in 2008 and $823.2 billion in 2007. The 2009 deficit on merchandise trade with China was $227 billion (Census basis), with the European Union was $61.1 billion, with Canada was $21.6 billion, with Japan was $44.7 billion, with Mexico was $47.8 billion, and with the Asian Newly Industrialized Countries (Hong Kong, South Korea, Singapore, and Taiwan) moved from a deficit of $5.5 billion in 2007 to a surplus of $2.2 billion in 2008 and a surplus again in 2009 of $3.5 billion. Imports of goods of $1,575.4 billion decreased by $564.1 billion, 26.4% over 2008. Exports of goods of $1,068.5 billion fell by $236.4 billion, 18.1%. The overall merchandise trade deficit for 2009 improved, or decreased in size, by $327.7 billion, or roughly 39%. In the fourth quarter of 2008, as the U.S. recession worsened, imports declined faster than exports resulting in monthly trade deficits declining from August 2008 through February 2009. In 2009 goods imports reached their lowest recent level in May, at $120.7 billion but generally have been rising since then. In 2009 goods exports fluctuated near $84 billion through May when they began to increase at about $2 billion monthly, reaching $107.2 billion in May 2010.

Trade deficits are a concern for Congress because they may generate trade friction and pressures for the government to do more to open foreign markets, to shield U.S. producers from foreign competition, or to assist U.S. industries to become more competitive. Overall U.S. trade deficits reflect excess spending (a shortage of savings) in the domestic economy and a reliance on capital imports to finance that shortfall. Capital inflows serve to offset the outflow of dollars used to pay for imports. Movements in the exchange rate help to balance trade. The rising trade deficit (when not matched by capital inflows) places downward pressure on the value of the dollar, which, in turn, helps to shrink the deficit by making U.S. exports cheaper and imports more expensive. Central banks in countries such as China, however, have intervened in foreign exchange markets to keep the value of their currencies from rising too fast. Bills in the 111th Congress relating to trade include H.R. 3012/S. 2821, H.R. 496/S. 1466, H.R. 1875, S. 3103, S. 3134, S. 1254, S. 1027, H.R. 2378, H.Res. 934, H.Res. 987, and H.Res. 1124.

The balance on current account includes merchandise trade plus trade in services and unilateral transfers. In 2009, the deficit on current account fell to $378.4 billion from $668.9 billion in 2008 and $718.1 billion in 2007. IHS Global Insight forecasts a higher deficit on current account for 2010, at $552.2 billion, and 2011, at $625.9 billion. In trade in advanced technology products, the U.S. balance improved from a deficit of $61 billion in 2008 to $56 billion in 2009. In trade in motor vehicles and parts, the $73.4 billion U.S. deficit in 2009 was mainly with Japan, Mexico, and Germany

Date of Report: July 13, 2010
Number of Pages: 41
Order Number: RL33577
Price: $29.95

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