Contact Us



China Trade Masks Key U.S. Gains

Because ECRI’s expertise concerns economic cycles, we can more accurately strip out the cyclical component of economic data, leaving behind the structural. For example, since the Great Recession, there have been momentous changes in U.S. trade that are widely overlooked. The U.S. enjoys a trade surplus in services that has more than doubled since the recession, but it has been overwhelmed by a trade deficit for non-energy goods that has more than tripled.

The overall U.S. trade deficit increased during the 1991-2001 and 2001-07 economic expansions, with pullbacks during the 2001 and 2007-09 recessions, before starting to widen again. Yet, the trade deficit has been fairly stable over the last seven years, hovering largely in the $35-50 billion per month range, well shy of the record $68 billion seen in the summer of 2006 (not shown). However, this relative stability obscures massive structural changes that have unfolded during the 21st century, and especially since the Great Recession.

While the U.S. has long enjoyed a trade surplus in services, hovering in the $4-8 billion range until 2006, after the Great Recession it began a strong advance, reaching around $20 billion in recent years (Chart, dark blue line). But this true American success story – a roughly 500% rise in its services trade surplus since 2003 – is not widely known. This may be because the trade deficit for goods excluding energy has more than tripled.

It is instructive to break up the goods trade deficit into the portion relating to petroleum- and natural gas-related goods (gold line) and other goods, which we call non-petroleum goods (burgundy line). Between 1989 and 1999, the petroleum goods trade deficit never topped $8 billion, but in the 21st century it ramped up, spurting in mid-2008 above $46 billion – a 1200% increase in ten years. But the fracking revolution has slashed that deficit to well below $10 billion in recent years – a better-known U.S. success story. Indeed, the combined trade surplus in services and petroleum goods has averaged $15 billion a month over the last two years.

So in order for the overall U.S. trade deficit to average $43 billion a month over the last two years, the trade deficit for non-petroleum goods has to have soared, and it has. The non-petroleum goods trade deficit has been averaging $57 billion a month over the last two years, and hit a record high of $63 billion in its latest reading (Chart, burgundy line).

China is almost singlehandedly responsible for this huge increase in the non-petroleum goods trade deficit in recent years, with Germany and Japan trailing far behind. China is also the most important driver of the increase in the U.S. trade surplus in services, which is, however, much smaller (not shown).

This structural shift in U.S. trade underscores a key reason for the loss of manufacturing jobs that is such a prominent political issue. Clearly, it would take transformational changes to stem that tide and bring back manufacturing jobs.

Related News & Events

All Signs Point to a Cyclical Slowdown in Inflation

Bloomberg July 18, 2017

Even as central bankers get more hawkish, the data show there's a change underway that the Fed is likely to miss. More


Turning Points: The Long and Short of It

ECRI June 13, 2017

Here are the key turning points underpinning the economic angst that won't go away. More


New Interview with Real Vision

Real Vision TV June 16, 2017

ECRI's Achuthan spoke with Real Vision TV about the 2017 cyclical outlook, and more. More


Jobs and the Fed

Reuters June 2, 2017

ECRI's Lakshman Achuthan talking jobs and the Fed on Reuters' Trading at Noon. More


ECRI in Seattle

ECRI July 18, 2017

ECRI's Lakshman Achuthan will be meeting with professional members in Seattle on July 18 - 20.


Related Reports