US Trade Deficit and How It Hurts the Economy

The Critical Drivers of the America's Trade Imbalance

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In 2019, the U.S. trade deficit was $616.8 billion according to the U.S. Bureau of Economic Analysis and the U.S. Census. The U.S. imported $3.1 trillion of goods and services while exporting $2.5 trillion.

The deficit is lower than in 2018 when it was $627.7 billion. One reason is that the dollar strengthened in 2018 through 2020. A strong dollar makes imports cheaper and exports more expensive.

The deficit is less than the record of $758 billion in 2006. The decrease since then means U.S. exports grew faster than imports. That's good for U.S. businesses and job growth. 

Key Takeaways

  • Long-term trade deficits hurt the economy. It increases the national debt. It also allows countries to lose their competitiveness.
  • The strength of the dollar influences the trade balance. A strong dollar increases the deficit by raising export prices. A weak dollar does the opposite.
  • Consumer products imports are the primary driver of the United States' trade deficit.
  • The United States exports more services than it imports.  

Consumer Products Drive the Trade Deficit

Consumer products, especially automobiles, are the primary drivers of the trade deficit. In 2019, the United States imported $654 billion in consumer goods, while only exporting $206 billion. That created a $448 billion deficit.

Automobile trade created half of that consumer product deficit. The United States imported $376 billion in cars, trucks, and their parts. It only exported $162 billion, creating a $214 billion deficit.

Petroleum Deficit Lowest Since 1998

In 2019, the United States exported $180.2 billion of petroleum. That includes crude oil, natural gas, fuel oil, and other petroleum-based distillates such as kerosene. New U.S. shale oil fields have been developed to the point where there is now an oversupply.  

The 2019 petroleum deficit was $13.7 billion. That was the lowest since 1998 when it was $42.8 billion.

America Is a Net Exporter of Services

The United States exported more services than it imported. It exported $845.2 billion in services while importing only $595.4 billion.  That created a trade surplus of $250 billion. It means U.S. services are very competitive in the global market. The surplus helps offset the deficit in goods.

Here's how much each category contributed to the trade surplus in services:

  • Intellectual property, royalties, and license fees -- $129 billion
  • Travel-related services and transport -- $306 billion
  • Computers and other business services -- $228 billion
  • Financial and insurance services -- $131 billion

The Primary Trading Partners

The United States has a $611 billion deficit with its top five trading partners:  

Country Deficit (in billions)
China $346
Mexico $102
Japan   $69
Germany   $67
Canada   $27
TOTAL TOP 5 $611

How the Dollar's Value Affects the Trade Deficit

The dollar declined by 40% against the euro from 2001 through 2007. This meant that U.S. goods and services were 40% cheaper for Europeans. That made U.S. companies more competitive, increasing exports.

The 2008 recession offset this advantage, causing global trade to decline. U.S. goods exports dropped from $1.3 trillion in 2008 to $1.1 trillion in 2009. Imports fell from $2.1 trillion in 2008 to $1.6 trillion in 2009. Both exports and imports have risen since then. This was despite the continued strength of the dollar since 2009, due to the eurozone crisis weakening of the euro. The dollar briefly weakened in 2017 but strengthened in 2018 through 2020. That's hurt exports.

Keep in mind that oil is priced in dollars. As the dollar declines, the Organization of Petroleum Exporting Countries increases prices to maintain its revenue. The U.S. reliance on oil means it will be difficult to escape its trade deficit.

Two 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 United States 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 it 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. On that day, the party is over.

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 the expertise and even the factories to make those products. Just try finding a pair of shoes made in America. As the United States loses competitiveness, it outsources more jobs and its standard of living declines. 

How the U.S. Trade Deficit Is Part of the Balance of Payments

Balance of Payments

  1. Current Account
    1. Current Account Deficit
      1. U.S. Current Account Deficit
    2. Trade Balance
      1. Imports and Exports
        1. U.S. Imports and Exports Summary
          1. U.S. Imports
            1. U.S. Imports by Year for Top 5 Countries
          2. U.S. Exports
      2. Trade Deficit
        1. U.S. Trade Deficit
          1. U.S. Trade Deficit by Country
          2. U.S. Trade Deficit With China
  2. Capital Account
  3. Financial Account

Article Sources

  1. U.S. Bureau of Economic Analysis. "Exhibit 1. U.S. International Trade in Goods and Services." Accessed April 18, 2020.

  2. Federal Reserve Bank of St. Louis. "Trade Weighted U.S. Dollar Index: Broad, Goods and Services," Accessed April 18, 2020.

  3. U.S. Census Bureau. "U.S. International Trade in Goods and Services," Accessed April 18, 2020.

  4. U.S. Census Bureau. "Annual 2019 Press Highlights," Accessed April 18, 2020.

  5. U.S. Census Bureau. "Exhibit 3. U.S. Exports of Services by Major Category." Accessed April 18, 2020.

  6. U.S. Census Bureau. "Exhibit 4. U.S. Imports of Services by Major Category," Accessed April 18, 2020.

  7. U.S. Census Bureau. "Top Trading Partners - December 2019," Accessed April 18, 2020.

  8. Office of the United States Trade Representative. "Canada, U.S.-Canada Trade Facts," Accessed April 18, 2020,

  9. Office of the United States Trade Representative. "Mexico, U.S.-Mexico Trade Facts," Accessed April 18, 2020.

  10. U.S. Census Bureau. "Trade in Goods with World, Seasonally Adjusted," Accessed April 18, 2020.

  11. Economic Policy Institute. "U.S. Trade Deficits Causes, Consequences, and Policy Implications," Accessed April 18, 2020.