The U.S. monthly count of the trade deficit decreased to $87.1 billion in April. Meanwhile, U.S. exports increased by $8.5 billion over March’s numbers to $252.6 billion. Imports were down $12.1 billion over March, totaling $339.7 billion. Exports reduce the deficit while imports have the opposite effect.
Annual U.S. Trade Deficit
The annual trade deficit for 2021 was $859.1 billion, according to the U.S. Bureau of Economic Analysis (BEA). The U.S. imported $3.4 trillion in goods and services, up $576.5 billion from 2020. Exports were at $2.5 trillion, marking a $394 billion increase from 2020. The 2021 trade deficit was significantly higher than that of 2020, in which the trade deficit was $676.7 billion. The COVID-19 pandemic and supply chain issues had a dramatic effect on imports in 2021. The current deficit sets a new record over the previous high mark of $763.5 billion in 2006. In the first quarter of 2022, the trade deficit was $288.8 billion. That number is ahead of the first quarter in both 2020 and 2021.
What Creates the U.S. Trade Deficit?
Consumer products are the primary drivers of the trade deficit. In 2021, the U.S. imported nearly $2.9 trillion in consumer goods while exporting nearly $1.8 trillion. That created a $1.1 trillion goods deficit and is the highest goods deficit on record.
The U.S. Is a Net Exporter of Services
In 2021, U.S. exports of services reached $771.2 billion, which reflects a $65.6 billion increase from 2020. This reflects an annual decrease in the services surplus of $15.3 billion to $230 billion in 2021. While numbers were lower than normal, U.S. services are still competitive in the global market. The surplus helps offset the deficit in goods. Other business services were the biggest contributor to the surplus at over $206 billion. Other big contributors in 2021 were:
Financial services: $164.1 billionIntellectual property: $124.8 billionTravel: $68.7 billionTransport: $65 billion
Primary Trading Partners of the U.S.
In 2021, the U.S. had a $915.0 billion deficit with its top ten trading partners. The 2008 recession offset this advantage, causing global trade to decline. This was despite the dollar’s continued strength since 2009, due to the Eurozone crisis weakening of the euro. The dollar briefly weakened in 2017 but strengthened in 2018 through the first part of 2020. That hurts exports. The dollar weakened throughout 2020 but has seen strong growth in 2022. In April 2022, the U.S. dollar hit a five-year high.
Ways the Trade Deficit Hurts the U.S. Economy
An ongoing trade deficit is detrimental to the nation’s economy because it is financed with debt. The U.S. can buy more than it makes because it borrows from its trading partners. It’s like a party where the pizza place is willing to keep sending you pizzas and putting them on your tab. This can only continue as long as the pizzeria trusts you to repay the loan. One day, the lending countries could decide to ask America to repay the debt. However, this isn’t likely to happen because it would have adverse effects on those countries’ currencies. Another concern about the trade deficit is the statement it makes about the competitiveness of the U.S. economy itself. By purchasing goods overseas for a long enough period, U.S. companies lose their expertise and even the factories to make those products. As the nation loses its competitiveness, it outsources more jobs, which reduces its standard of living.
