U.S. Trade Deficit Rose about 50% from 2016 to 2021

[ABS News Service/09.06.2022]

The Numbers:

Q1/2022 - 4.9%

2021 -4.0%

2016 -2.7%

2005 -5.7%*

* Highest on record; GDP stats begin in 1929. Deficits for 1815-1816 may have been higher, but GDP for those days is guess-work. In dollar terms, the 2016 deficit (goods/services) has grown by about 80%, from $481 billion; to a 2021 deficit of $861 billion.

What They Mean:

The Trump administration’s first “President’s Trade Agenda” report, released in March of 2017, cited U.S. manufacturing trade balance data as an index of the failures of previous administrations:

“In 2000, the U.S. trade deficit in manufactured goods was $317 billion. Last year it was $648 billion — an increase of 100%.”

The next “President’s Trade Agenda” report of 2018 used “bilateral” trade balance to assert a failure of the North American Free Trade Agreement and set a goal for the “USMCA” which succeeded it:

“Our goods trade balance with Mexico, until 1994 characterized by reciprocal trade flows, almost immediately soured after NAFTA implementation, with a deficit of over $15 billion in 1995, and over $71 billion by 2017.” … “USTR has set as its primary objective for these renegotiations to improve the U.S. trade balance and reduce the trade deficit with the NAFTA countries.”

The two assertions’ use of trade-balance data as a way to judge policies have well-known logical,* data,** and economic theory*** problems. This duly noted, how do they look on their own terms five years later? By 2021, U.S. exports had dropped from the 11.9% share of GDP they held in 2016 to 10.8%; imports, meanwhile, had grown a bit from 14.6% to 14.8% of GDP. Here then are the same two trade-balance statistics for 2021 and (very tentatively, based on one quarter’s worth of trade data) so far in 2022:
1. The U.S. manufacturing deficit in 2021 was $1.07 trillion. The last four months’ data suggest a 2022 total somewhere around $1.3 trillion. If this ends up about right, the 2016 manufacturing deficit noted in the 2017 “President’s Trade Agenda” would have doubled in five years. 

2. The trade balance with Mexico (again, goods only) was $108 billion in 2021, a year after USMCA implementation. It looks likely to top $125 billion in 2022, with tariffs on Chinese consumer goods still shifting some purchasing of TV sets, auto parts, etc., to Mexico.

* The “post hoc, ergo propter hoc” fallacy.

** Comparison of nominal-dollar balance in 2000 to the nominal-dollar balance in 2016, unadjusted for inflation.

*** Global trade balance will always equal national investment minus national savings; if tax cuts and large fiscal-stimulus programs reduce savings, trade balances will automatically go into deficit unless investment collapses for some reason. So the 2017 comment is not a useful comment on trade agreements, and the 2018 objective likely not one achievable through policy.