Tuesday, 26 of September of 2017

Economics. Explained.  

Trade Deficit

September 6, 2017

The trade deficit for July widened by $0.2 billion to $43.7 billion after having narrowed by $2.8 billion in June.     Exports declined 0.3%.  Imports declined by 0.2%.

Frequently exports and imports can be shifted around by price changes rather than the volume of exports and imports.  Thus, what is really important is the trade deficit in real terms because that is what goes into the GDP data.  The “real” trade deficit widened by $0.8 billion in July after having narrowed by $2.0 billion in June .

Increasing energy production in the U.S. is having a significant impact on our trade deficit in oil.  Since 2007 real oil exports have quintupled from $2.0 billion to $10.0 billion, while real oil imports have fallen from $20.0 billion to $18.0 billion. As a result, the real trade deficit in oil has been cut by about $10.0 billion or 55% in the past several years and is the smallest since the early 1990’s.  Most energy exports believe that by the end of the decade the U.S. will not only surpass Saudi Arabia and Russia  and become the world’s biggest producer of oil, but also become a net exporter of oil.  Very impressive!  And now with U.S. producers allowed to export oil, that could happen even sooner.

Significant strength of weakness in the dollar can impact the trade deficit for any given period of time.  For example, the dramatic 22% rise in the value of the dollar from October 2014 through the end of 2015 subtracted about 0.5% from GDP growth in both 2014 and 2015.  This year we have the opposite thing  happening.  The dollar has fallen 7.5% since the end of last year, principally against the Euro as GDP growth in strengthening in that region.  As a result, we expect the trade component to add 0.2% to GDP growth this year.  At the same time it will raise the inflation rate in the U.S. as the prices of imported goods are now higher.

The non-oil trade gap has been essentially unchanged in the past year with a deficit steady at about $60.0 billion as non-oil exports rose 3.5% while non-oil imports climbed by 4.0%.  Going forward the non-oil trade gap will be essentially unchanged during 2017 while the trade deficit for oil continues to shrink.

Stephen Slifer

NumberNomics

Charleston, SC


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