The U.S. goods and services trade deficit has plateaued at about -$700 billion for the past eighteen months. There are five key things to note about the U.S. foreign trade deficit.

1) The foreign trade deficit would be about $125 billion higher (i.e., “goods” alone) except for the surplus in services. The U.S. dollar has declined considerably in value, long term, versus the Canadian dollar and the Euro and, over the past year, versus the Japanese yen. As a result, the number of foreign tourists visiting the U.S. has shot up. This explains the burst in hotel construction, particularly in resort areas such as Las Vegas, California and Florida, over the past year and a bit.

2) The foreign trade deficit is as low as it is partly due to weakness in automotive demand. The U.S. imports more cars and parts than it exports. Consumers are under assault from high gasoline prices and weak job prospects and are, therefore, holding back on durable goods purchases.

3) The foreign trade deficit would be a lot lower if it weren’t for the run-up in oil prices over the past year. The international price of oil has doubled from around $60 USD per barrel to a recent high of $126 in the course of a very short period of time.

4) The stability in the trade shortfall blunts a good deal of the outcry raised by alarmists about the size of the U.S. twin deficits, in trade and at the federal government spending level. The trade deficit is usually looked at as a percentage of the nation’s GDP. It is good news that for quite a while now, that percentage comparison has not grown.

5) The U.S. trade deficit with China has dropped by about $100 billion from almost $300 billion as recently as last fall, to under $200 billion now. The almost 20% increase in value of the Chinese yuan versus the greenback since the summer of 2005 has been a factor. However, weaker demand from U.S. consumers for a variety of goods must also be cited and that, unfortunately, is a sign of an economy in slowdown mode.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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