R. Williams Analyst in International Trade and Finance
J. Michael Donnelly Information Research Specialist
global financial crisis and the U.S. recession, during the 19 months from
December 2007 through June 2009, caused the U.S. trade deficit to
decrease, or lessen, from August 2008 through May 2009. Since then it has
begun to increase again as recovery has commenced. The financial crisis
caused U.S. imports to drop faster than U.S. exports, but that trend has
reversed as U.S. demand for imports recovers.
Exports of goods of $1,497 billion in 2011 increased from 2010 by $209
billion or 16%, while imports of goods of $2,236 billion in 2011
increased by $302 billion, also 16%, over 2010. Though both exports and
imports increased by 16%, this led to an increase in the overall merchandise
trade deficit (i.e., the trade balance became more negative) for
2011 of $93 billion or 15% over 2010. Because imports are greater than
exports, exports must increase at a greater percentage than imports to
maintain the current trade balance.
In 2011, the trade deficit in goods reached $738 billion on a balance of
payments (BoP) basis, still lower than the previous peak of $836 billion
in 2006, but greater than the deficits in 2009 and 2010 of $506 billion
and $645 billion. The 2011 U.S. deficit on merchandise trade (Census basis) with
China was $295.4 billion, with the European Union (EU27) was $99.9 billion,
with Canada was $34.5 billion, with Japan was $63.2 billion, and with
Mexico was $64.5 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 increasing from $2.2 billion
in 2008 to $15.4 billion in 2011.
Related to the goods trade balance is the balance on the current account, which
includes merchandise and services trade plus investment income and
unilateral transfers. The deficit on the current account grew in 2011 to
$466 billion from $442 billion in 2010. This smaller increase in the
current account deficit ($24 billion), as compared to the increase in the goods
trade deficit ($93 billion), reflects an increase in the U.S. surplus in
both services trade and investment income.
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. However, interventions in foreign exchange markets by countries
such as China and South Korea can keep the value of their currencies from
rising too fast, thus keeping the dollar strong and imports cheaper.
Areas to watch in 2012 in international trade include the energy and
transportation sectors. In energy, unconventional oil and gas production
are increasing U.S. domestic supply, reducing imports, and increasing
exports. In transportation, U.S. automakers appear to be exporting well to growth
markets such as China.
Note: This report is current through U.S. Department of Commerce annual
data revisions, published June 8, 2012, and Bureau of Economic Analysis
revisions published June 14, 2012.
Date of Report: October 19, 2012
Number of Pages: 38 Order Number: RL33577 Price: $29.95
For email and phone orders, provide a Visa, MasterCard, American Express, or Discover card
number, expiration date, and name on the card. Indicate whether you want e-mail
or postal delivery. Phone orders are preferred and receive priority processing.