A trade deficit occurs when a country's imports exceed its exports during a given time period.
In March 2022, the U.S. monthly trade deficit increased by $20 billion to $109.8 billion. Meanwhile, U.S. exports increased by $12.9 billion to $241.7 billion in March. Imports were up $32.9 billion over February, totaling $351.5 billion. Exports reduce the deficit while imports have the opposite effect.
- A trade deficit occurs when a nation imports more than it exports.
- The U.S. trade deficit increased from $676.7 billion in 2020 to $859.1 billion in 2021.
- The U.S. monthly trade deficit increased in March 2022 to $109.8 billion.
- Consumer product imports are the primary driver of the U.S. trade deficit.
Annual U.S. Trade Deficit
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.
The annual total 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.
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.
In 2021, the U.S. exported $196.1 billion of petroleum, the highest amount on record. 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 of oil.
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 billion
- Intellectual property: $124.8 billion
- Travel: $68.7 billion
- Transport: $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.
|Country||Deficit (in billions)|
How the Dollar's Value Affects the Trade Deficit
The dollar declined against the euro from 2001 through 2008. This meant that U.S. goods and services were cheaper for Europeans. That made U.S. companies more competitive, increasing exports.
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.
Keep in mind that oil is priced in dollars. As the dollar declines, the Organization of Petroleum Exporting Countries (OPEC) increases prices to maintain its revenue. U.S. reliance on oil means it will be difficult to escape its trade deficit.
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.
Frequently Asked Questions (FAQs)
What is the current U.S. trade deficit?
As of March 2022, the U.S. Census Bureau and the U.S. Bureau of Economic Analysis reported that the goods and services deficit was $$109.8 billion, an increase of $20 billion over February's totals.
How long has the U.S. been in trade deficit?
The U.S. has experienced an annual trade deficit since the mid-1970s. As U.S. financial assets became more attractive to foreign investors during this time, the shift from surpluses to deficits also corresponds with a structural change in the economy as the U.S. entered the third stage of industrialization.
What country does the U.S. have the largest trade deficit with?
As of March 2022, the U.S. has its largest trade deficit, at $48.6 billion, with China, also one of its largest trading partners. Exports to China were $12.9 billion and imports were $61.5 billion in March 2022.
Bureau of Economic Analysis. "Monthly U.S. International Trade in Goods and Services."
Bureau of Economic Analysis, United States Census Bureau. "2021 Trade Gap is $859.1 Billion."
U.S. Census Bureau. "Annual 2021 Press Highlights."
Bureau of Economic Analysis. "U.S. International Trade in Goods and Services, February 2022," Page 3.
U.S. Census Bureau. "Top Trading Partners - December 2021."
Federal Reserve Bank of St. Louis. "U.S. / Euro Foreign Exchange Rate."
Federal Reserve Bank of St. Louis, Economic Research. "Historical U.S. Trade Deficits."