Download Locations

• Open CRS (User submitted)

Summary

The U.S. trade deficit is shrinking primarily because the global financial crisis is causing U.S. imports to drop faster than U.S. exports. The global simultaneous recession, however, implies that exporting countries cannot rely on increased foreign demand to make up for slack demand at home. Even though U.S. imports are projected to decline, companies competing with imports are still likely to face diminishing demand as the domestic economy shrinks. These conditions imply that the political forces to protect domestic industry from imports are likely to intensify both in the United States and abroad. In 2008, the trade deficit in goods reached $821.2 billion on a balance of payments (BoP) basis, up slightly from $819.4 billion in 2007 but less than the $838.3 billion in 2006. The 2008 deficit on merchandise trade with China was $266.3 billion (Census basis), with the European Union was $93.4 billion, with Japan was $72.7 billion, with Canada was $74.2 billion, with Mexico was $64.4 billion, and the Asian Newly Industrialized Countries (Hong Kong, South Korea, Singapore, and Taiwan) was $3.8 billion. Imports of goods of $2,112.5 billion increased by $144.7 billion (7.3%) over 2007. Exports of goods of $1,291.3 billion rose by $142.8 billion (12.4%). Although the overall trade deficit for 2008 was up, in the fourth quarter as the U.S. recession worsened, imports declined faster than exports resulting in a trade deficit for the month of December that was $23.0 billion less than the comparable deficit for July. 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 broadest measure of U.S. international economic transactions is the balance on current account. In addition to merchandise trade, it includes trade in services and unilateral transfers. In 2007, the deficit on current account fell to a revised $738.6 billion from a revised $811.5 billion in 2006. In trade in advanced technology products, the U.S. balance improved from a deficit of $38 billion in 2006 but deteriorated to $53 billion in 2007 and $56 billion in 2008. In trade in motor vehicles and parts, the $107 billion U.S. deficit in 2007 was mainly with Japan, Mexico, Germany, and South Korea. In crude oil, major sources of the $342 billion in imports were Canada, Saudi Arabia, Venezuela, Nigeria, and Mexico. This report will be updated periodically.

XML