What does it mean for the US to have a half a trillion dollar trade deficit?

Fifty years ago, the US trade balance went into a deficit. Since 1971, the US trade deficit has grown to more than half a trillion dollars. The trade deficit decreased from $73.2 billion to $70.1 billion from June to July of this year as the value of exports increased and imports decreased. The US trade deficit was $676 billion in 2020 according to the Bureau of Economic Analysis.

While half a trillion dollars can be startling to read, whether the US has an overall trade deficit or surplus says more about trade patterns than the health of the US economy.

Although the US is currently at a trade deficit, it remains the largest importer and exporter of goods and services, according to the Office of the US Trade Representative. This means that the value of imports, as well as exports, is larger than any other country’s.

What is the trade balance in the US?

The trade balance is the difference between the total value of goods and services a country exports and imports. Unlike other economic measures, such as gross domestic product, the trade balance does not evaluate economic strength. Instead, it provides a picture of trade patterns with other countries^[1].

Several factors affect the US trade balance, such as the health of the global economy, the value of the dollar compared to the currencies of its trade partners, and the demand for goods and services at home and abroad.

For example, since the trade balance measures the value of goods and services in a global market, the strength or weakness of each US trade partner’s currency affects that balance. When a major trade partner’s currency is stronger than the US dollar, that can increase the trade deficit even if the number of goods imported or exported does not change.

However, healthy economic growth can also lead to the same result. When the US economy is strong, demand for goods and services increases, driving imports higher^[2]. This can increase the trade deficit even if US exports increase as well.

The current trade balance has decreased since the Great Recession recovery and is approaching a deficit similar to 2008 levels.

Which countries have the biggest trade deficits or surpluses with the US?

The US has the largest trade deficit with China, totaling almost $285 billion, or 34% of net trade. In 2020, Chinese imports to the US were worth $172.5 billion more than imports from Mexico, the nation’s second-largest trading partner. Since 2018, the US trade deficit with China has decreased and has increased with Mexico.

The US has the largest trade surplus with Brazil, with a total of $21.4 billion in 2020. However, trade with Brazil accounted for 2.5% of net US trade.

Which goods and services are traded the most?

In 2020, the US imported more than it exported goods across all major sectors. Capital goods, like machinery and equipment, were the largest export during this year, with a total value of $269 billion. The largest imports were consumer goods like clothing and jewelry, totaling $349 billion in value.

Data on services imported and exported shows a different picture in 2020. The US had a $245 billion trade surplus in net services. That surplus has decreased in the last two years.

US imports exceed exports in seven out of 11 major service sectors. While the government and recreational service sectors have a trade deficit, it’s less than $3 billion.