The U.S. monthly trade deficit decreased by 3.1% to $71.2 billion in May 2021. U.S. exports increased to $206.0 billion in May—a 0.6% increase since April. Imports increased in May by 1.3% from April to $277.3 billion. Exports reduce the deficit while imports have the opposite effect.
While exports and imports dropped during the COVID-19 pandemic, both have returned to pre-pandemic levels.
Annual US Trade Deficit
In 2020, the U.S. trade deficit was $678.7 billion, according to the U.S. Bureau of Economic Analysis (BEA). The U.S. imported $2.8 trillion of goods and services, which is down $294.5 billion from 2019. Exports were at $2.1 trillion, which is $396.4 billion less than 2019.
That 2020 trade deficit is higher than in 2019 when it was $576.9 billion. The COVID-19 pandemic had a dramatic effect on imports and exports.
While large, the deficit is still less than the record of $763.5 billion in 2006.
- Long-term trade deficits hurt the economy.
- A strong dollar increases the deficit by raising export prices.
- Consumer products imports are the primary driver of the U.S. trade deficit.
- The U.S. exports more services than it imports.
What Creates the US Trade Deficit?
Consumer products are the primary drivers of the trade deficit. In 2020, the U.S. imported $2.4 trillion in consumer goods, while only exporting $1.4 trillion. That created a $915.8 billion deficit and is the highest goods deficit on record.
In 2020, the U.S. imported $116.4 billion of petroleum, which is the lowest amount since 2002. 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 2020 petroleum surplus was $18.1 billion, the first annual surplus on record.
The US Is a Net Exporter of Services
In 2020, U.S. exports of services were $697.1 billion, which were the lowest since 2016. That exceeded its imports of $460.1 billion, which were the lowest since 2011. That created a trade surplus of $237.1 billion, which is the lowest since 2012. While numbers were lower than normal, U.S. services are still competitive in the global market. The surplus helps offset the deficit in goods.
The biggest contributor to the surplus were other business services, at $185.7 billion in exports. Other big contributors were:
- Financial services: $135.8 billion
- Intellectual property: $115.3 billion
- Travel: $76.1 billion
Primary Trading Partners of the US
In 2020, the U.S. had a $551.2 billion deficit with its top five trading partners.
|Country||Deficit (in billions)|
How the Dollar's Value Affects the Trade Deficit
The dollar declined against the euro from 2001 through 2007. 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 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 the first part of 2020. That hurts exports. The dollar weakened throughout 2020 and into 2021.
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 US 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 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 their expertise and even the factories to make those products. Just try finding a pair of shoes made in the U.S. As the nation loses its competitiveness, it outsources more jobs, and its standard of living declines.