U.S. Trade Deficit Improving Marginally
Alex Carrick
December’s Trade Deficit -$711 Billion
In 2007, the U.S. trade deficit in goods and services basically found a level − around -$700 billion − and stayed there.
The deficit in December, 2007 was -$711 billion. It has to be said, however, that this was a significant improvement versus some months in 2005 and 2006 that exceeded -$800 billion. The accompanying chart clearly shows these comparisons.
The trade balance is made up of two components, goods (in deficit) and services (in surplus). Comparing end-of-year levels in 2007 versus 2006, the deficit in goods was little changed (-$68.2 billion vs -$68.6 billion respectively). Where there was significant improvement was in the services surplus ($9.5 billion in December 2007, up from $8.3 billion in December 2006).
Increased Travel in the U.S. by Foreigners
A major reason for the improvement in the services surplus was increased travel in the United States by foreigners. With respect to U.S. trade figures, expenditures by foreigners traveling within the United States are considered to be exports. Expenditures by Americans when they travel abroad are considered imports.
The decline in value of the U.S. dollar over the past several years has made the United States a more attractive tourist destination. This has implications for construction, as revealed by the work that is proceeding on major destination resorts, particularly in Florida, California and Las Vegas.
Free Market Economies Struggle towards Equilibrium
Free market economies struggle towards equilibrium. If the shortfall or excess becomes too great in one area, then there will be adjustments in other areas to correct the imbalance. At the moment, the U.S. dollar is continuing to slide in value. This process has been underway for several years. There are many reasons, with lower interest rates currently being at the top of the list. However, another factor has been the large U.S. trade deficit. That is why it is important to keep monitoring the U.S. trade balance.
While the figures often demonstrate volatility, it has traditionally been the case that about one-quarter to one-third of the U.S. deficit in goods trade has been with China and a similar proportion has been accounted for by a combination of the Euro area and OPEC. In the most recent figures (as set out in the accompanying table), the largest improvements in the U.S. goods trade deficit have been recorded with Canada and the Euro area.
