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Wednesday, October 12, 2011

U.S. International Trade: Trends and Forecasts

Dick K. Nanto
Specialist in Industry and Trade

J. Michael Donnelly
Information Research Specialist

The global financial crisis, now officially dated to the 19 months from December 2007 through June 2009, caused the U.S. trade deficit to decrease from August 2008 through May 2009, but since then it has begun to increase again as recovery has commenced, and now stalled. The financial crisis caused U.S. imports to drop faster than U.S. exports, but that has been reversed as U.S. demand for imports recovers.

In 2010, the trade deficit in goods reached $645.9 billion on a balance of payments (BoP) basis, more than the $505.9 billion in 2009, but less than the $830.1 billion in 2008. The 2010 deficit on merchandise trade (Census basis) with China was $273 billion, with the European Union (EU27) was $79.7 billion, with Canada was $28.3 billion, with Japan was $59.8 billion, and with Mexico was $66.3 billion. With the Asian Newly Industrialized Countries (Hong Kong, South Korea, Singapore, and Taiwan), the trade balance moved from a deficit of $5.5 billion in 2007 to surpluses of $2.2 billion in 2008, $3.5 billion in 2009, and $14 billion in 2010. Imports of goods of $1,935.6 billion in 2010 increased by $360.2 billion, 18.5% over 2009. Exports of goods of $1,289.1 billion increased by $220.6 billion or 20.6%. The overall merchandise trade deficit for 2010 increased, or became more negative, by $131 billion or 26% over 2009.

Despite increasing debts, in 2010, the United States ran a surplus of $163 billion in investment income with the rest of the world. With China, however, there was a deficit of $37 billion and with Japan $33 billion. In automotive trade, the United States ran deficits of $44 billion with Japan, $37 billion with Mexico, $18 billion with Germany, and $11 billion with South Korea. In energy trade, the U.S. deficit in 2010 of $273 billion was 26% greater than the $217 billion in 2009, but less than the $415 deficit in 2008. We examine in detail high technology trade; energy trade and the crude oil deficit and its source countries; and transportation trade.

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. The trade agenda of the 112th Congress centers on three Free Trade Agreements awaiting congressional action and trade with China.

The balance on current account includes merchandise trade plus trade in services and unilateral transfers. In 2010, the deficit on current account grew to $470.2 billion from 2009’s $378.4 billion and from $668.9 billion in 2008. IHS Global Insight forecasts a higher deficit on current account for 2011, at $557 billion, and remaining near $600 billion through 2016.

Selected trade and financial legislation in the 112th Congress includes S. 380, S. 433/H.R. 913, S. 308, S. 328/H.R. 639, H.R. 1655, H.R. 29, H.R. 516, H.R. 554, H.R. 833, S. 98, S. 708, H.R. 2832.

This report includes changes made by the U.S. Department of Commerce data revisions released on June 9, and September 8, 2011.

Date of Report: September 23, 2011
Number of Pages: 42
Order Number: RL33577
Price: $29.95

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