The U.S. goods and services trade deficit rose to $438 billion USD in September. It had been as low as $317 billion in May of this year. At its worst, it reached around $800 billion, often in 2005-2006 and last seen in the middle of last year when the world price of oil was at its peak.
In September versus August, the U.S. experienced export sales gains in civilian aircraft, industrial machinery and jewelry. However, those gains did not make up for the import jumps in crude oil and autos and parts. Month-to-month exports rose 2.9% but imports climbed 5.8%.
U.S. currency devaluation
The nature of economic recovery will see the U.S. goods and services trade deficit worsen in the months ahead. However, there are several factors that may limit the size of the deterioration in the deficit versus previous performance levels. First among these will be currency devaluation.
The decline in value of the U.S. dollar, due largely to the retreat from security in U.S. treasury bills and a hunt for higher returns in other assets and other countries, will lower U.S. export prices and raise import costs. The hunt for higher investment returns includes seeking better foreign interest rates, since the Fed is committed to leaving its key policy-setting rate near zero.
Adding to the currency adjustment impact on the trade deficit will be the coming increase in value of the Chinese yuan versus the greenback. The trade impact will be dependent on the degree to which purchasers shift to domestic sources as opposed to moving to other low-cost Southeast Asian nations such as Vietnam, or elsewhere in a cost-competitive world.
Changes on the energy front
There are also changes underway on the energy front. Global oil prices are double their lows from February. But natural gas prices remain much more restrained on an energy equivalency basis. The supply of natural gas in North America has taken a sharp turn for the better due to new technologies that are permitting extraction from previously inaccessible sources.
Horizontal drilling for shale natural gas and techniques to break up the rock are making natural gas more readily available and at an economic cost. Second, the shift to more fuel efficient cars that received a boost from the “cash for clunkers” program and carmakers’ own initiatives to get smaller gas-sipping vehicles on the roads – often to comply with new government regulations – are working to reduce oil consumption. Further technological change to reduce fossil fuel usage is also looming due to pending legislation that will see carbon taxes imposed on heavy polluters.
Canada still in deficit
Canada is still in the unusual position of recording a merchandise trade deficit (-$11.1 billion CDN) rather than its usual surplus with the world. The shortfall improved by a little more than half in September as exports, on a month-to-month basis, increased 3.5% at the same time as imports stayed flat. Even when Canada’s trade position shifts over to a positive balance, it may have trouble returning to its former lofty heights. Such an outcome may be the fallout from natural gas prices staying depressed and the loonie continuing to climb versus the greenback.
|Annualized||Per cent of total|
|(U.S. $ billions)||Trade deficit|
|Canada||1 Year Ago||-88.3||9.9%|
|3 Months Ago||-18.3||3.8%|
|Mexico||1 Year Ago||-61.6||6.9%|
|3 Months Ago||-41.1||8.5%|
|Germany||1 Year Ago||-34.2||3.8%|
|3 Months Ago||-27.6||5.7%|
|China||1 Year Ago||-333.9||37.5%|
|3 Months Ago||-221.2||46.0%|
|Japan||1 Year Ago||-66.9||7.5%|
|3 Months Ago||-44.4||9.2%|
|India||1 Year Ago||-4.4||0.5%|
|3 Months Ago||-2.1||0.4%|
|Euro Area||1 Year Ago||-73.5||8.3%|
|3 Months Ago||-48.8||10.1%|
|Indonesia*||1 Year Ago||-9.6||1.1%|
|3 Months Ago||-7.5||1.6%|
|OPEC Nations||1 Year Ago||-156.6||17.6%|
|3 Months Ago||-70.3||14.6%|
|Nigeria||1 Year Ago||-26.4||3.0%|
|(OPEC||3 Months Ago||-15.1||3.1%|
|Saudi Arabia||1 Year Ago||-35.1||3.9%|
|(OPEC||3 Months Ago||-11.0||2.3%|
|Venezuela||1 Year Ago||-41.2||4.6%|
|(OPEC||3 Months Ago||-21.6||4.5%|
|Latest period||Year to date|
|AUG 09||SEP 09||%||Jan-SEP 08||Jan-SEP 09||%|
|(Cdn $ billions)||Change||(Cdn $ billions)||Change|
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