Annual Trade Deficit of the United States
The annual trade deficit for 2021 was $859.1 billion, according to the U.S. Bureau of Economic Analysis. The United States imported $3.4 trillion worth of goods and services, an increase of $576.5 billion from 2020. Exports totaled $2.5 trillion, marking an increase of $394 billion from 2020.
The trade deficit for 2021 was much higher than the trade deficit for 2020, which was $676.7 billion. The COVID-19 pandemic and supply chain issues had a significant impact on imports in 2021. The current deficit is a new record, surpassing the previous record of $763.5 billion set in 2006.
In the first quarter of 2022, the trade deficit was $288.8 billion. This figure surpasses the first quarter in both 2020 and 2021.
What Causes the U.S. Trade Deficit?
Consumer goods are the main factor in the trade deficit. In 2021, the United States imported nearly $2.9 trillion in consumer goods while exporting about $1.8 trillion. This resulted in a goods deficit of $1.1 trillion, the highest goods deficit in history.
In 2021, U.S. services exports totaled $771.2 billion, reflecting an increase of $65.6 billion from 2020. This represents an annual decline in the services surplus by $15.3 billion to $230 billion in 2021. Although the figures were lower than usual, U.S. services remain competitive in the global market. The surplus helps offset the goods deficit.
Other business services were the largest contributor to the surplus, exceeding $206 billion. Other significant contributions in 2021 included:
- Financial services: $164.1 billion
- Intellectual property: $124.8 billion
- Travel: $68.7 billion
- Transportation: $65 billion
Major Trade Partners of the United States
In 2021, the United States had a deficit of $915.0 billion with its top ten trading partners.
| Country | Deficit (in billions) |
|---|---|
| China | 355.3 |
| Mexico | 108.2 |
| Vietnam | 91.0 |
| Germany | 70.1 |
| Japan | 60.2 |
| Ireland | 60.2 |
| Canada | 49.5 |
| Malaysia | 41.0 |
| Taiwan | 40.2 |
| Italy | 39.3 |
| Total | 915.0 |
How Does the Value of the Dollar Affect the Trade Deficit?
The dollar depreciated against the euro from 2001 to 2008. This made U.S. goods and services cheaper for Europeans. This made American companies more competitive, leading to an increase in exports.
The recession that occurred in 2008 offset this advantage, causing a decline in global trade. Despite the dollar’s strength since 2009, due to the Eurozone crisis and the weak euro, the dollar briefly declined in 2017 but strengthened in 2018 until the first part of 2020. This negatively affects exports. The dollar declined throughout 2020 but saw strong growth in 2022. In April 2022, the U.S. dollar reached a five-year high.
Please note that oil is priced in dollars. As the dollar declines, the Organization of the Petroleum Exporting Countries (OPEC) raises prices to maintain its revenue. The United States relies heavily on oil, making it difficult to escape the trade deficit.
How Does the Trade Deficit Hurt the U.S. Economy?
The persistent trade deficit harms the national economy because it is funded by debt. The United States can buy more than it produces because it borrows from its trading partners.
It’s like a party where the pizza restaurant is willing to send more pizza and put it on your tab. This process can continue as long as the pizza restaurant trusts you to pay off the debt. However, one day the lending countries may decide to ask the United States to repay the debt. However, this is unlikely to happen since it would have negative effects on the currencies of those countries.
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Concerns about the trade deficit also reflect on the competitiveness of the U.S. economy itself. By purchasing goods from abroad for long enough, American companies lose their expertise and even factories to make those products. As the country loses its competitiveness, it relies on more foreign jobs, which reduces the standard of living.
Frequently Asked Questions (FAQs)
What is the current trade deficit of the United States?
As of April 2022, the U.S. Census Bureau and the U.S. Bureau of Economic Analysis reported that the trade deficit in goods and services was $87.1 billion, a decrease of $20.6 billion from the total in March.
How long has the United States been experiencing a trade deficit?
The United States has been experiencing an annual trade deficit since the early 1970s. With the increasing attractiveness of U.S. financial assets to foreign investors during this time, the shift from surplus to deficit corresponds with a structural change in the economy as the United States entered the third phase of manufacturing.
Which country does the United States have the largest trade deficit with?
As of April 2022, the United States has the largest trade deficit, valued at $112.7 billion, with China, which is also one of its largest trading partners. Exports to China were $50.0 billion and imports were $162.7 billion in the first quarter.
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Source: https://www.thebalancemoney.com/u-s-trade-deficit-causes-effects-trade-partners-3306276
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