Spending Beyond Our Means: US Trade Balance By Decade
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How many zeroes are in 690 billion? Most of us need to write it out, just to make sure we’ve got our numbers straight. President Obama can probably tell you in his sleep. He’s presiding over a $690 billion trade deficit, the largest in the history of the United States, both as a number (that’s ten zeroes, by the way) and as a percentage of our country’s GDP (that’s 5%). Our latest infographic takes a look at deficit spending through the decades.
A trade deficit occurs when a country imports more goods and services than it exports. In the United States, imports have been out-sizing exports since the 1980s. In fact, the last time we produced a trade surplus was in 1975, with President Gerald Ford in residence at the White House. Ever since, our country has been living beyond its means, and the debt is steadily mounting.
Sound familiar? Many blamed the current economic crisis on the fact that millions of Americans spent more than they earned. Perhaps it’s in our genes.
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leave a commentI would be interesed in seeing a further breakdown of what we trade with these countries. Oil, electronics, raw materials, consumer products, equipment, etc.
“Ever since, our country has been living beyond its means, and the debt is steadily mounting.”
Correlation does not imply causation. Internally I don’t think I disagree with this sentence (even if in some circumstances, such as war or perhaps recession, deficit due to particular excess expenditures is permissible and perhaps even necessary). However, to the extent that this statement implies that the trade deficit has brought about these latter two horrors, I disagree.
Is the trade deficit a meaningful figure? I don’t think it is. How concerned are you about the trade deficit you run with your local grocery store? Not much. The store supplies what you want, and you supply it with what it wants in return. Does it matter that the store takes in vastly more than you do? No. All it says is that the store has a comparative advantage in providing those goods to you. Similarly, with respect to the US trade deficit, all this says is that other countries have comparative advantages in some goods and services, such that it is more sensible for individuals and businesses to get those goods or services from outside the country rather than inside it. What matters is that the economy grows, not that more or less of it is spent internally or externally. (What happens to those excess dollars sent abroad? Do they necessarily stay abroad, or is there a virtuous feedback loop in which some are then spent on other goods in which the US holds a comparative advantage?)
The paper “Why Trade Deficits Don’t Matter” may be of further value in illuminating the unimportance of trade deficits:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2138
Canada is our largest trading partner? What are we importing from Canada? I can think of only oil and Canadian citizens. Surely we aren’t importing more oil from Canada than junk from China!
Canada supplies us with a large amount of cheap Pharmaceuticals
Timber, Water, Electricity, Natural Gas, Oil, etc…..
This is a great graphic, but a trade deficit is sort of like inflation. It’s easy to complain about inflation, and too much inflation can solve problems. But deflation (and trade surplus) is even worse.
Think about it: the reason the US is able to run a trade deficit is because foreign companies and foreign governments love to invest here. That’s a good thing. Trade deficit is a synonym for capital surplus.
I realize this is an oversimplification, but comparing a trade deficit to maxing out your credit card is a worse oversimplification.
But dang, I love these infographics. They always make me think.
You think this is because country’s are buying less and less of our major export (weapons)?
It doesn’t look like these number account for our service industries. As an economy develops less of it’s populace want to work in a plant and more want to be architects, bankers, designers, investors, etc… Most academic journals actually show us with a positive “trading income” if you include all sources of money flowing in and out of the US.
That’s just the trade deficit, which shows the difference between exports and imports. It does not give any definitive proof as to whether or not Americans are spending beyond their means.
Can’t we just sell the lower half and pay off our debt?
Whom do we fire to make this right?
Or can we just start over?
Does anyone in the US government even care anymore?
What about the 24 trillion dollars (that we know of) which disappeared in the banker bailout? Shouldn’t that count towards the deficit?
I love how the ‘fiscal conservative’ Republicans caused so much of the deficit during the 80s-early 90s and 2000s. Useless.
To the person who questioned what you import from Canada? A lot of things actually, you hit the nail on the head with oil, you purchase more oil from us than Saudi Arabia. I know especially in Ontario, but also around the country, car parts and assembled cars from companies like Ford, GM, Toyota etc. Of course the raw materials, lumber, aluminum. We are a bigger trading partner than you think, treat us better!
More imports from Canada then China?!
To the people who are amazed that we import more from Canada than China, I think I have an explanation.
It seems to me that more of what you see stamped with “made in _____” says China than Canada, but more of what you use on a day to day basis comes from Canada. Lumber or oil doesnt say made in _______ on it. DVD players do, though.
Simply put – Consumer goods = China
Natrual resources = Canada
What you NOTICE = Goods from China
Presenting the raw dollar amounts like this is deceptive (though, it looks more dramatic).
When you look at the ratio between imports and exports instead of the raw dollar amounts, you find only a very small change from 0.74 to 0.72 between 2000 to 2008.
Charting this ratio over time would be much more accurate and useful since inflation is accounted for. Your chart is currently very deceiving – I would expect higher quality analysis from the people who made my favorite online financial tracking tool.
Canadian Exports To USA
Petroleum products …US$63.7 billion (21% of Canada to U.S. exports, up 6% from 2005)
Passenger cars … $36.6 billion (12.5%, up 1.5%)
Car parts & accessories … $15.6 billion (5.1%, down 2.5%)
Complete & assembled cars … $12.2 billion (4%, down 2.3%)
Aluminum … $7.7 billion (2.5%, up 36.1%)
Lumber … $6.6 billion (2.2%, down 8.9%)
Finishing materials (e.g. shingles, wallboard) … $5.9 billion (2.0%, down 10.7%)
Plastics … $5.8 billion (1.9%, up 7.9%)
Telecommunications … $4 billion (1.3%, down 0.7%)
Engines & parts … $3.98 billion (1.3%, down 8.6%)
Also
Medicinal, dental & pharmaceutical preparations … $3.5 billion (up 43.5%)
Other things
Garage door openers, lawn mowers, high end appliances – stoves, dishwashers, washing machines
Ross, This number is absolutely meaningless. Perhaps the most significant thing it’s showing us is that the U.S. is becoming much more of a knowledge and service economy than a goods producing country.
What is the goal here? A equal numbers? A balanced “balance of trade”? A trade surplus? If we have a trade surplus does that mean other countries have a trade deficit and if so is that bad for them?
Think of a few of the stores you shop at. Perhaps Wal-Mart. You have a huge trade deficit with them! I bet you haven’t given them a single dollar’s worth of tangible product. No, you only give them money for their products.
Nor does the trade deficit have anything to do with indicating our economic condition. You point back to 1975 with Gerald Ford when we had a surplus. Oh really, want to go back to 1975? Ford and Carter were some of the worst presidents our country has had in terms of economic policies. Something tells me sky-rocketing interest rates, high unemployment, and skyrocketing oil prices make the 1970′s not so rosy.
If you want to see if Americans are spending beyond their means look not at the “trade deficit” (it doesn’t tell you anything about spending anyway only tangible goods that cross arbitrary political borders) but rather at things like credit reports, or the amount of debt people are in vs. savings.
I hope analysis on your blog will stop focusing on straw men, with little understanding of economic thinking.
Ok trading is good. However at the point we trade with SOE’s or State owned enterprises with China who use their countries taxes to subsidize their industries and create a better place for their indiviudal owned industries I see a problem.
The US and Canada can have a go at it with close balances, Mexico we are in debt to but China since we have been trading with them we have never had a surplus of trade with China. It has been all strategic trading done by China.