|WACO, September 4 - For many years, the United States has imported substantially more than it has exported. This fact has caused grave concern among a host of economists, analysts, professors, and pundits (though I think the magnitude of the situation is overstated at times).
Based on July data released this week, the dollar value of goods and services imported from other countries was about $39.1 billion larger than the value of what we exported. That’s a slight increase in the gap compared to June, but still represents a huge improvement over the past pattern.
The July goods deficit was $58.6 billion, while the surplus in services was $19.4 billion. Compared to July 2012, the trade deficit is down $4.3 billion (almost ten percent). Several notable records were also established. U.S. imports of automotive vehicles, parts, and engines totaled $26.5 billion, the highest level ever. The U.S. trade deficit with China reached an all-time high ($30.1 billion), the deficit with the European Union hit a record high of $13.9 billion, and imports from Europe reached $35.1 billion for the first time. Part of the reason for these widening gaps is ongoing economic trouble in Europe, which put a damper on U.S. exports to the European Union.
Taking a long-term historical view, trade data over the past 20 years shows a sharp rise through the late 1990s which picked up steam in the early 2000s. There was a peak in 2006, with the total deficit topping out at more than $813.4 billion (according to U.S. Bureau of the Census data which shows the series in 2009 dollars, so it would be a value somewhat higher than that in today’s dollars).
There are several problems with running such huge trade deficits. For one thing, it means that the wealth of American consumers (whether individuals or corporations) is being transferred outside of the country and into the pockets of the people who are making the goods. Purchasing from foreign manufacturers reduces sales and profits to those in the United States. In addition, this outflow of funds is essentially offset by an inflow of credit (such as investments in U.S. securities) to keep things in global balance; if foreign investors decide to turn off the spigot, we’re left high and dry. (These balance of payments linkages are much more complicated than that, and there are a number of other factors at work, but that’s the essential tradeoff.) Low exports are also a signal that U.S. goods are not all that competitive on global markets, which is certainly undesirable.
It’s been very good news, therefore, that trade deficits are dropping. By 2009 (using that same series in 2009 dollars), the total imbalance had fallen to $503.6 billion, though it bounced back up a little through the worst of the global recession. Last year, this series of data indicates a total deficit of $588.3 billion.
Looking behind the totals, the importance of petroleum is immediately noted. If you eliminate crude oil imports, you eliminate a sizable chunk of the deficit. In July, crude oil imports were $23.4 billion of a total import volume of $189.2 (using the Census basis). This is second only to automotive vehicles, parts, and engines ($26.5 billion), and no other single category comes close. The rise in domestic oil production which has been enabled by technological advances such as fracking is helping us in two ways: reducing the need for imported crude and increasing the potential for exporting various refined and other petroleum-derived products.
A quick note about an item in the headlines regarding the United States becoming a net exporter of petroleum products. While this statement is accurate, and it is noteworthy that U.S. exports of petroleum products exceeded imports in 2011 for the first time in 60 years, it’s less well understood what we mean by “petroleum products.” This category includes things like refined products, and the huge category of “crude oil” is not included. If you look at the larger “petroleum” category, we are still very definitely importing as a nation. In fact, total barrels of oil imported still exceed total barrels of oil produced in the U.S., though this gap is narrowing.
Over time, I expect the trade deficit to continue to shrink. As European and other global economies improve, there will be more capacity for those countries to afford to buy U.S. products. The oil boom here is likely to keep bumping up our ability to produce our own crude, reducing the need for imports. All in all, I think we are seeing a more sustainable pattern emerge, which is clearly good news.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.