The U.S. international trade deficit in goods and services increased by $3.4 billion to $38.5 billion in August from a revised $35.1 billion in July as exports decreased (-$1.0 billion) and imports increased (+$2.3 billion).
Definition of Balance of Trade
A country’s balance of trade (or net exports) is the value of its exports minus its imports. If the result is positive, that is, exports are greater than imports, we describe it as a surplus in the balance of trade. A trade deficit occurs when imports are greater than exports.
Net exports are equal to exports minus imports. Net exports are positive if exports exceed imports and are negative if imports exceed exports.
August exports were $81.9 billion and imports were $120.3 billion, leading to an overall trade deficit of $38.5 billion. Exports of goods decreased by $1.1 billion and exports of services increased by $.1 billion. Imports of goods increased by $2.2 and services by $.3 billion.
The trade deficit (exports minus imports) increased rapidly from March 1998 to September of 2000. From September 2000 to March 2001, the monthly trade deficit remained relatively stable around $33 billion. Between March and September, imports fell more rapidly than exports, causing the trade deficit to decrease from $33 billion to $28.4 billion. Following the events of September 11, both imports and exports of goods and services decreased dramatically. (For more information on the impact of September 11 tragedy on international trade, see the September and October case studies from 2001.)
After September, the levels of exports and imports more closely approximated the previous levels and the trade deficit returned to the $28 billion to $31 billion range. Imports increased as the economy began to recover from the recession and as oil prices increased. Exports increased in tandem, but were not sufficient to offset the increase in imports. As oil prices continued to increase and the economy continued to recover, the trade deficit has moved higher, reflected in approximately $35 billion deficits of June, July, and August.
Exports and imports in dollar terms have been increasing for the last 30 years. Exports and imports as percentages of GDP have been increasing throughout most of those years. As percentages of GDP, exports and imports rose rapidly in the 1970s, were steady in the 1980s, and began to rise again in the 1990s. The trade deficit, as a percentage of GDP, increased dramatically in the 1980s, shrank in the late 1980s and early 1990s, then began to rise again in the late 1990s. Over the last several years, imports have continued to rise as a percentage of GDP and exports have fallen.
Exports are currently 9.8 percent of GDP; imports are 13.9 percent; and the trade deficit is 4.1 percent of GDP.
Components of International Trade
The United States imports and exports both goods and services.
As shown in figure 4, currently goods account for 71 percent of our exports and 83 percent our imports.
Services account for 29 percent of our exports and 17 percent of our imports. (The spike in the graph in the percentage of imports that is made up of goods and the fall in the percentage that is services is due to the rather larger absolute decrease in imports of services during September.)
The major categories of goods imported and exported are:
- Capital goods (aircraft, semiconductors, computer accessories, machinery, engines)
- Vehicle parts and engines
- Industrial materials and supplies (metals, energy, plastics, textiles, lumber)
- Consumer goods (pharmaceuticals, apparel, toys, TV/VCRs, furniture, gem stones)
- Food, feed, and beverages.
The relative contributions of each to U.S. exports and imports for the year 2001 are illustrated in the two pie charts below.
In 2001, the United States exported more capital goods (for example, semiconductors, computer accessories, and electrical equipment and machines) than we imported. Food, feed, and beverages exported and imported were approximately equal. But in automotive products, consumer goods, and industrial supplies (crude oil, chemicals, newsprint, plastics, and others), we imported significantly more than we exported.
Automobiles (7%), semiconductors (5%), computers and accessories (5%), aircraft (5%) and telecommunications equipment (3%) are the largest components of U.S. exports. Among imports, automobiles (14%), crude oil (6%), computer accessories (6%), and apparel (4%) are the most significant goods categories.
The main categories of services include travel, fares, transportation, and royalties/license fees.
- Travel: Goods and services purchased by international visitors to the United States and U.S. citizens who are traveling abroad (food, lodging, recreation, gifts). (25% of exports, 29% of imports)
- Passenger fares: The transportation expenditures of people from the United States traveling abroad and individuals from other countries traveling to the United States (primarily airfare). (6% of exports, 11% of imports)
- Transportation: The transportation costs for goods moved by ocean, air, pipeline, and railway to and from the United States (5% of exports, 7% of imports)
- Royalties and license fees: Fees for patents, copyrights, and trademarks. (14% of exports, 8% of imports)
- Other: Government, defense and private services.
Changes in Imports and Exports of Goods and Services
The decrease in exports in August was due to a decrease in goods exported with a slight increase in services exported. The U.S. exported more industrial supplies, but this was more than offset by fewer exports of food, feed, beverages, and capital goods,. The increase in services exported was due to increases in travel and passenger fares which are continuing to recover from their post-September 11 lows recorded in October, and imports of services increased primarily due direct military spending.
The increase in imports during August was due to a relatively large increase in goods imported - primarily increased imports of consumer goods and industrial supplies. Service imports increased slightly.
International Trading Partners
The graph above shows what percentages of United States imported goods come from each of our major trading partners and the percentage of our exported goods going to those same countries. These are percentages of United States exports and imports and do not necessarily represent a trade surplus or deficit with individual countries.
As you can see in the graph, 25% of goods exported from the U.S. are sent to Canada, while 20% of all U.S. goods imported come from Canada. Since our exports to Canada exceed our imports, the U.S. has a trade surplus in goods with Canada. The U.S. also has a trade surplus in goods with Mexico, Britain, and the Netherlands.
More frequently, the U.S. runs a trade deficit in goods - that is we are importing more goods from abroad than we are exporting. Trade with Japan accounts for 13% of U.S. imports and 9% of U.S. exports. We are also running a goods trade deficit with China, Western Europe, Canada, Mexico, and the OPEC countries. We are experiencing small goods surpluses with Australia, Hong Kong, and Singapore.
Questions for Students
- What does it mean if a country has a balance of trade that is zero?
- What does it mean if a country has a balance of trade that is in deficit?
- How can a country receive more goods and services from abroad than it sends in return?
- If the growth in spending in U.S. economy is slowing, what will be the likely effect on imports? Explain why. If the growth in spending is more rapid in the U.S. than the rest of the world, what will be the likely effect on net exports? Explain why.
- If inflation is higher in the United States than in countries with which the United States trades, what will likely happen to U.S. exports? Why?