International Trade

Whopping increase in 1999 deficit
It was obvious all through 1999 that the U.S. deficit in trade in goods would set a new record high for the fifth consecutive year – and it did. The $330.1 billion deficit beat the previous year’s record of $229.8 billion by $100 billion, or 44 percent. Manufactured goods contributed more than $80 billion of the increase; automotive trade (vehicles and parts) alone accounted for one third of that jump. The higher U.S. oil bill was responsible for most of the increase in the deficit in non-manufactured goods.

Developed countries led the way
Already-large deficits with developed countries grew dramatically in 1999. The U.S. deficit with Canada almost doubled from $16.7 billion in 1998 to $32.1 billion last year, while the imbalance with the European Union rose by 60 percent to $43.7 billion. The deficit with Japan, the biggest for any country, jumped an additional $10 billion to $73.9 billion. These three trading partners were responsible for 45 percent of the overall U.S. deficit in 1999 and just about half the 1998-1999 increase.

China, Mexico not far behind
Unfortunately, this still leaves plenty of room for higher deficits with developing countries. As the pressure builds for Congress to maintain annual reviews on China’s trade, labor and human rights practices by denying Permanent Normal Trade Relations status, the U.S. trade imbalance with China keeps growing. At $68.7 billion last year, the deficit with China was up by more than 20 percent from 1998. The U.S. deficit with Mexico also grew sharply in 1999, to $22.8 billion. Deteriorating U.S. balances with Brazil, Colombia and Venezuela caused U.S. trade with Central and South America to shift from a sizable surplus in 1998 to a deficit in 1999, a negative swing of $16 billion. Higher oil prices contributed to some of this shift. The rising cost of oil also wiped out the U.S. trade surplus with Saudi Arabia, which had been $4.3 billion in 1998.

More of the same in 2000
Looking ahead, the highest-ever U.S. trade deficit for January points toward the likelihood that the year 2000 will bring yet another record U.S. trade deficit, the sixth in a row. As long as the U.S. market remains open and economic conditions elsewhere in the world remain sluggish, the U.S. will remain the “market of first resort” as well as the “market of last resort” for producers worldwide — and the trade imbalance will climb as a result.

Value of the dollar strong for now
Also contributing to the imbalance is the stronger value of the dollar. This makes imports cheaper and U.S. exports more expensive abroad. How can the dollar be getting stronger when the U.S. trade deficit is soaring? The companies and individuals in other countries who are paid in dollars for their exports are investing those dollars in the U.S. rather than bringing them home and trading them in for their local currency. With speculation-driven U.S. financial markets continuing to attract funds from abroad, there is plenty of demand for dollars, which keeps the dollar’s value strong. In short order, though, the dollar could change from “strong” to “over-valued” and a U.S. financial crisis could result.

Statistics in Brief

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Noteworthy News

How has the deficit changed?
While it’s important to look where the trade deficit is headed in the future, it’s also useful to know where it’s been. The chart below looks at U.S. deficits in goods trade (services are not included) in four years: 1987 (the high-water mark for the trade deficit in the 1980s); 1991 (the recent low point, due to the recession’s impact on U.S. demand for all goods, including imports); 1995 (the first in the recent string of record deficits); and 1999.

Several facts about the deficit’s size and composition stand out in the table. While the U.S. suffered very serious trade problems through the 1980s and early 1990s, the overall deficit in goods was only slightly higher in 1995 than in 1987. None of our trade problems went away during this period, but several of them did not get worse, either. Balances in automotive and aerospace trade were similar in those two years, as was the trade deficit with Japan. The decline in the deficit with developed countries, notably the European Union, was offset by a larger deficit with developing countries, especially China, leaving nearly equal U.S. deficits with these two groups.

The increase in the deficit from 1995 to 1999 is truly staggering. The 1999 deficit is twice the size of the 1995 deficit (which was, of course, a record at the time). What is more, nearly all of the countries, regions, and sectors in the table contributed to the increase. The trade gap with developing countries, again led by China, increased faster than with developed countries.

While automotive trade followed the pattern of overall trade during the full period, trade in fuels and aerospace products seem to have their own rhythm, depending importantly on economic conditions outside the U.S. Trade with the European Union shows the biggest fluctuations with the economy’s ups and downs. Trade with China seems least responsive to the business cycle, with the U.S. deficit growing extremely rapidly in bad times as well as good.

Recessions bring deficits down -- is that the only way?
The recession of the early 1990s brought the deficit in goods well below $100 billion, but that improvement was short-lived: the recovery pushed the deficit up quickly, and it has been soaring since. It would be best for UAW members and other American workers for U.S. trade to move toward sustained balance. That, in turn, will take changes in the rules governing international trade. Given the dependence of foreign producers and U.S.-based multinationals alike on a wide open U.S. market, movement in that direction will take strenuous efforts by the national and international coalition on display in Seattle (last year) and Washington (at April’s meetings of the World Bank and International Monetary Fund)

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