What the Trade Deficit Is:
The trade deficit is when the total goods and services the U.S. imports is greater than the total it exports. In 2008, the total U.S. trade deficit was $695.9 billion, which is $1.8 trillion in exports minus $2.5 trillion in imports. The deficit improved by $5.5 billion between 2007 and 2008, thanks to higher exports, a result of the declining dollar. (Source: U.S. Bureau of Economic Analysis, "U.S. International Trade in Goods and Services,Exhibit 1", June 10, 2009).Petroleum Imports Create the Trade Defict:
Petroleum imports drive the trade deficit. The U.S. imported over $453 billion in petroleum-related imports while only exporting $67 billion. The deficit of $386 billion was over half of the total deficit. Fortunately, the U.S. exported more services, such as banking and entertainment, than it imported. The trade surplus was $144 billion. (See spreadsheet in Google Docs)Petroleum-related Products:
Petroleum-related products consist primarily of crude oil, natural gas, fuel oil and other petroleum-based distillates such as kerosene. These imports totaled $453 billion in 2008, 37% more than the $331 billion imported in 2007. Sky-rocketing oil prices drove this deficit. As a result, oil became a larger contributor to the U.S. trade deficit than in 2006 or 2007.Consumer Products :
In 2008, the U.S. ran a $320 billion deficit in consumer products, such as Drugs, Consumer Electronics, Clothing, Household Goods, and Furniture. It imported $481 billion while only exporting $$162 billion. This was also up from prior years, despite a declining dollar and resultant inflation.Automotive and Food:
Automotive is another category where the U.S. ran a trade deficit in 2008. It imported $233 billion worth of cars, trucks and auto parts, while only exporting $121 billion, running a deficit of $112 billion. No doubt this will be worse in 2009, as U.S. automakers declare bankruptcy.In 2008, the U.S. finally became a net exporter of food, exporting $108 billion while importing $88 billion.
The U.S. Is a Net Exporter of Services:
Overall, the U.S. is a net exporter of services. It exported $549 billion while importing only $405 billion. This caused a surplus of $144 billion. This is because of U.S. success in exporting intellectual property, as measured by royalties and license fees ($91 billion). It also exported travel-related services ($110 billion). A large driver was other private services such as financial services $233 billion). This could decline if the credit crisis weakens credibility in U.S. financial services.The Primary Trading Partners:
The primary trading partners with the U.S. are Canada, Mexico, China and Japan. About one-third of U.S. exports go to Canada and Mexico, with another 15% going to Japan, China and the UK. The U.S. receives one-third of its imports from Canada and China, with Mexico, Japan and Germany contributing an additional 20%.Why an Ongoing Trade Deficit Could Harm the Economy:
An ongoing trade deficit could be detrimental to the nation’s economy over the long term because it is financed with debt. In other words, the U.S. can buy more than it makes because the countries that it buys from are lending it the money. It is like a party where you’ve run out of money, but the pizza place is willing to keep sending you pizzas and put it on your tab. Of course, this can only go on as long as there are no other customers for the pizza, and the pizza place can afford to loan you the money. One day the lending countries may decide to ask the U.S. to repay the debt. On that day, the party is over.How the Dollar Decline Affects the Trade Deficit:
The dollar has declined 40% against the euro in the last six years. This means that U.S. goods and services are 40% cheaper for Europeans. This makes makes U.S. companies more competitive, and increases exports. That is a large reason why exports have gone up 12%, from $1.6 trillion in 2007 to $1.8 trillion in 2008. (See The Value of the Dollar)However, imports have gone up, as well, from $2.3 trillion in 2007 to $2.5 in 2008, or 8%. That is because oil is priced in dollars, so as the dollar declines, OPEC must increase its price to maintain its revenue. The U.S. reliance on oil means it may always be in deficit.
