For other versions of this document, see http://wikileaks.org/wiki/CRS-RL33577 ------------------------------------------------------------------------------ ¢ ¢ ¢ ¢ ¢ Prepared for Members and Committees of Congress ¢ This report provides an overview of the current status, trends, and forecasts for U.S. international trade. The purpose of this report is to provide current data and brief explanations for the various types of trade flows, particularly U.S. exports, along with a short discussion of particular trends and points of contention related to trade policy. The United States is now running huge deficits in its trade with other nations. Between 2006 and 2007 the U.S. merchandise trade deficit declined slightly from $838 billion to $819 billion on a balance-of-payments (BoP) basis and from $817 billion to $790 billion on a Census basis. A 2007 surplus in services trade of $119 billion resulted in a deficit of $700 billion on goods and services for the year--down $53 billion or 7.0% from the $753 billion deficit in 2006. While U.S. exports are highly competitive in world markets, these sales abroad are overshadowed by the huge demand by Americans for imported products. In 2007, U.S. exports of goods and services totaled $1,646 billion, while U.S. imports reached $2,346 billion. Since 1976, the United States has incurred continual merchandise trade deficits with annual amounts fluctuating around an upward trend. The current slowdown in the U.S. economy plus the declining value of the dollar have worked to reduce the deficit. Trade deficits are a concern for Congress because they may generate trade friction and pressures for the government to do more to open foreign markets, to shield U.S. producers from foreign competition, or to assist U.S. industries to become more competitive. As the deficit increases, the risk also rises of a precipitous drop in the value of the dollar and disruption in financial markets. Compared to a Federal Reserve index of currencies weighted by importance to U.S. trade, the dollar has lost a third of its value since 2002. In 2007, the dollar again fell against major currencies. Overall U.S. trade deficits reflect excess spending (a shortage of savings) in the domestic economy and a reliance on capital imports to finance that shortfall. Capital inflows serve to offset the outflow of dollars used to pay for imports. Movements in the exchange rate help to balance trade. The rising trade deficit (when not matched by capital inflows) places downward pressure on the value of the dollar which, in turn, helps to shrink the deficit by making U.S. exports cheaper and imports more expensive. Central banks in countries such as China, however, have intervened in foreign exchange markets to keep the value of their currencies from rising too fast. The broadest measure of U.S. international economic transactions is the balance on current account. In addition to merchandise trade, it includes trade in services and unilateral transfers. In 2007, the deficit on current account fell to a revised $738.6 billion from a revised $811.5 billion in 2006. In trade in advanced technology products, the U.S. balance improved from a deficit of $44 billion in 2005 to a deficit of $38 billion in 2006, but deteriorated to $53 billion in 2007. In trade in motor vehicles and parts, the $121 billion U.S. deficit in 2007 was mainly with Japan, Mexico, Germany, and South Korea. In crude oil, major sources of the $237 billion in imports were Canada, Saudi Arabia, Venezuela, Nigeria, and Mexico. This report will be updated periodically. Most Recent Developments............................................................................................................. 1 Trade in Goods.................................................................................................................... 1 Trade in Services................................................................................................................. 1 Trade in Goods and Services .............................................................................................. 1 The U.S. Deficit in International Trade ........................................................................................... 2 Savings Shortfalls and the Trade Deficit................................................................................... 3 Implications of the Trade Deficit .............................................................................................. 4 Types of Trade Data .................................................................................................................. 7 U.S. Merchandise Trade Balance .................................................................................................... 7 Merchandise Trade Balance in Volume Terms .............................................................................. 10 Current Account Balance............................................................................................................... 13 Forecasts........................................................................................................................................ 15 U.S. Trade with Selected Nations.................................................................................................. 16 Advanced Technology, Autos, and Oil .......................................................................................... 22 Some Common Perceptions .......................................................................................................... 25 Outsourcing............................................................................................................................. 25 Is the Trade Deficit at a Dangerous Level? ............................................................................. 26 Is Trade with China Merely Replacing That with Southeast Asia? ............................................... 27 International Trade Statistics Web Resources................................................................................ 29 Figure 1. Monthly U.S. Balances of Trade in Goods and Services, 2007 and 2008 (in Current Dollars)............................................................................................................................ 2 Figure 2. Month-End Trade-Weighted U.S. Dollar Against Broad, Major Currencies, and Other Important Trading Partner Indices, January 2000-October 2008 ....................................... 5 Figure 3. U.S. Merchandise Exports, Imports, Trade Balance, and Real Effective Dollar Exchange Rate Index, 1982-2007 ................................................................................................ 8 Figure 4. Real U.S. Imports, Exports, and Trade Balance of Goods (chained 2000 dollars), 1990-2007 .................................................................................................................... 10 Figure 5. Annual Growth in U.S. Merchandise Exports and Imports, 1982-2007 ....................... 12 Figure 6. U.S. Current Account and Merchandise Trade Balances, 1982-2007........................... 13 Figure 7. U.S. Merchandise Trade and Current Account Deficits, 1997-2010 (Forecast in Current Dollars).......................................................................................................................... 16 Figure 8. U.S. Merchandise Trade Balances With Selected Nations, 2007................................... 17 Figure 9. Shares of U.S. Imports of Goods by Affiliation of Foreign Producer, 1998-2004........ 26 Figure 10. The U.S. Current Account Deficit as a Percent of Gross Domestic Product, 1985-2010 (forecast) .................................................................................................................. 27 Table 1. U.S. Exports, Imports, and Merchandise Trade Balances, 1982-2007 .............................. 9 Table 2. U.S. Merchandise Trade in Volume Terms, 2001-2007 ....................................................11 Table 3. U.S. Current Account Balances: 1985-2007.................................................................... 14 Table 4. U.S. Merchandise and Current Account Trade, 2003 to 2010 (Forecast) ....................... 15 Table 5. U.S. Merchandise Trade Balances with Selected Nations and Groups, 2002-2007 ........ 18 Table 6. Top U.S. Merchandise Deficit Trading Partners, 2007.................................................... 19 Table 7. Top U.S. Trading Partners Ranked by Total Merchandise Trade in 2007........................ 20 Table 8. U.S. Current Account Balances With Selected U.S. Trading Partners, 2007 ................. 21 Table 9. U.S. Trade in Advanced Technology Products ................................................................ 23 Table 10. U.S. Trade in Motor Vehicles and Parts by Selected Countries, 2007.......................... 24 Table 11. U.S. Imports of Crude Oil from Selected Countries, 2007............................................ 24 Table 12. Changes in U.S. Merchandise Trade Balances With Selected Countries and Groups, 2006 and 2007 .............................................................................................................. 28 Author Contact Information .......................................................................................................... 30 In 2007, the trade deficit in goods reached $819.4 billion on a balance of payments (BoP) basis, down $18.9 billion from $838.3 billion in 2006. The 2007 deficit on merchandise trade with China was $256.2 billion (Census basis), with the European Union (EU-27) was $107.2 billion, with Japan was $82.8 billion, with Canada was $68.2 billion, with Mexico was $74.6 billion, and the Asian Newly Industrialized Countries (Hong Kong, South Korea, Singapore, and Taiwan) was $3.9 billion. Imports of goods of $1,957.0 billion increased by $99.8 billion (5.6%) over 2006. Increases in imports by sector were: crude oil up $20.6 billion, capital goods except automotive up $26.2 billion, automotive vehicles and parts up $2.3 billion, and consumer goods up $32.3 billion. Exports of goods of $1,162.5 billion rose by $125.8 billion (12.1%), particularly in industrial supplies, up $40.3 billion, capital goods except automotive up $32.4 billion, automotive vehicles and parts up $14.1 billion, and consumer goods up $17.0 billion. Exports grew faster than imports, which narrowed the trade deficit in goods. Increasing U.S. exports were credited with growth in U.S. gross domestic product (GDP) remaining positive in 2008. However, the contribution of net exports to GDP growth disappeared in November. From January through November, 2008, U.S. exports of goods rose 15%, above their 2007 average. By contrast, U.S. imports of goods increased 9.5% above their 2007 average. U.S. exports and imports of goods began to decline in July, 2008. In November, exports of goods were $23.6 billion lower and imports were $45.3 billion lower than in July 2008. In 2007, total annual imports of services of $378.1 billion and exports of $497.2 billion yielded a surplus in U.S. services trade of $119.1 billion. The U.S. service industries, particularly, financial services, tourism, shipping, and insurance, tend to compete well in international markets. 2008 U.S. services exports and imports peaked in August, and have declined each month since. In goods and services, total imports in July 2008 of $229.5 billion were the highest in the year and in U.S. history. Imports of goods and services have declined each month since July through November 2008. July total exports of goods and services of $168.4 billion were the highest in year 2008 and U.S. history. The latest monthly deficit on goods and services, for November 2008, was $40.4 billion, below the record high set in July 2006 of $67 billion.. For January through November 2008, the monthly goods and services balance fluctuated above and below the 2007 levels. The total deficit of $630.9 billion for January through November 2008, was less than the equivalent period for 2007, of $642.7 billion. The November 2008 monthly balance on goods and services of -$40.4 is the lowest monthly deficit in three years. For 2007, the annual trade deficit on goods and services amounted to 5.1% of U.S. gross domestic product (GDP, $13.8 trillion in 2007), down slightly from 5.4% in 2006. A level of 5% for countries is considered to be cautionary by economic observers. At that level, other countries have experienced problems paying for imports and maintaining the value of their currency. ni( 8002 dna 7002 ,seciv reS dna sdooG ni edar fo secnalaB .S.U ylhtnoM .1 erugiF T )sralloD tnerruC $Billions 20 Services 2008 Services 2007 $ $ $ $ $ $ $ $ $ $ $ 0 -20 -40 $ -60 $ $ $ $ $ $ $ $ $ Goods 2007 $ Goods 2008 -80 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Month .ecremmoC fo tnemtrapeD .S.U eht morf ataD htiw SRC :ecruoS Figure 1 shows U.S. trade balances in goods and services by month. 2007 data is graphed in bars; 2008 data is graphed in lines. In 2007, the monthly surplus in services gradually rose from $7.8 billion to $11.9 billion. The 2008 monthly services balance averages $12 billion. Total 2007 annual imports of services of $378.1 billion and exports of $497.2 billion yielded a surplus in U.S. services trade of $119.1 billion.1 In 2008, the monthly surplus in services trade has been higher than equivalent months in 2007, although the November services balance was only slightly higher than the equivalent month for 2007. The 2008 balance on trade in goods has been greater than equivalent months in 2007 with the exception of the months of March and November. For 2008, this monthly goods deficit has been averaging -$69.4 billion per month, compared with -$68.2 in 2007. International trade in goods and services along with flows of financial capital affect virtually every person living in the United States. Whether buying imported clothes, gasoline, computers or cars, or working in an industry that competes with imports, or sells products abroad, the influence of international trade on economic activity is ubiquitous. The United States in now running record deficits in its trade with other nations. In 2007 the U.S. merchandise trade balance reached $794.5 billion on a Census basis and $819.4 billion on a balance-of-payments basis (BoP). Still, the 2007 merchandise trade deficit presents an 1 Monthly trade data are available from the U.S. Bureau of Economic Analysis at http://www.bea.gov/newsreleases/ International/trade/2008/pdf/trad0808.pdf. improvement over 2006, in which the U.S. merchandise trade deficit reached $817.3 billion on a Census basis and $838.3 billion on a balance-of-payments basis (BoP). A surplus in services trade of $119.1 billion in 2007 produced a deficit of $700.3 billion on goods and services for the year-- lower than the $753.3 billion in 2006 and the $711.6 billion goods and services deficit in 2005. While U.S. exports are highly competitive in world markets, U.S. sales abroad are overshadowed by the huge demand by Americans for imported products. In 2007, U.S. exports of goods and services totaled $1.646 trillion, while U.S. imports reached $2.346 trillion (BoP). Since 1976, the United States has incurred continual merchandise trade deficits with annual amounts fluctuating around an upward trend. For the Congress, the trade deficit and other aspects of international trade enter into public policy considerations through many portals. At the macroeconomic level, trade deficits are a concern because they affect U.S. economic growth, interest rates, labor, and the debt load of the economy. As the trade deficit rises relative to the total economy, the risk increases that the dollar will weaken, raise prices, disrupt financial markets, and reduce the economic well being of the population. On the strategic level, trade ties often lead to a deepening of bilateral relations with other nations that can develop into formal free trade agreements or political and security arrangements. Trade also can be used as a tool to accomplish strategic objectives--particularly through providing preferential trading arrangements or by imposing trade sanctions. On the microeconomic side, imports of specific products can generate trade friction and pressures from constituent interests for the government to shield U.S. producers from foreign competition, provide adjustment assistance, open foreign markets, or assist U.S. industries to become more competitive. This report provides an overview of the current status, trends, and forecasts for U.S. import and export flows as well as certain balances. The purpose of this report is to provide current data and brief explanations for the various types of trade flows along with a brief discussion of trends that may require attention or point to the need for policy changes. The use of trade policy as an economic or strategic tool is beyond the scope of this report but can be found in various other CRS reports.2 Further detail on trade in specific commodities, with particular countries or regions, or for different time periods, can be obtained from the Department of Commerce,3 U.S. International Trade Commission,4 or by contacting the authors of this report. Overall U.S. trade deficits reflect a shortage of savings in the domestic economy and a reliance on capital imports to finance that shortfall. A savings shortfall is the analogue of excessive spending that is financed by borrowing. Households borrow for consumption; businesses borrow to invest; 2 See, for example,CRS Report RL31832, The Export Administration Act: Evolution, Provisions, and Debate, by Ian F. Fergusson; CRS Report RL33463, Trade Negotiations During the 110th Congress, by Ian F. Fergusson; CRS Report RL31356, Free Trade Agreements: Impact on U.S. Trade and Implications for U.S. Trade Policy, by William H. Cooper; CRS Report RL32371, Trade Remedies: A Primer, by Vivian C. JonesCRS Report RL32493, The North Korean Economy: Leverage and Policy Analysis, by Dick K. Nanto and Emma Chanlett-Avery or CRS Report RL33652, The Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW): Congressional Issues, by Luisa Blanchfield. 3 Commerce Department data are available at http://www.bea.gov/. 4 U.S. International Trade Commission data are available at http://dataweb.usitc.gov/. and the government borrows to cover its budget deficit. At the international transaction level, the savings shortfall is manifest when the United States imports capital to pay for its excess of imports (trade deficit). Whether this foreign borrowing is beneficial for the U.S. economy depends on how the imports of capital are used. If they are used to finance investments that generate a future return at a sufficiently high rate (they raise future output and productivity), then they may increase the well being of current and future generations. However, if the imports are used only for current consumption, the net effect of the borrowing will be to shift the burden of repayment to future generations without a corresponding benefit to them. U.S. trade balances are macroeconomic variables that may or may not indicate underlying problems with the competitiveness of particular industries or what some refer to as the competitiveness of a nation. The reason is that overall trade flows are determined, within the framework of institutional barriers to trade and the activities of individual industries, primarily by macroeconomic factors such as rates of growth, savings and investment behavior (including government budget deficits/surpluses), international capital flows, and exchange rates.5 Increases in trade deficits may diminish economic growth, since net exports (exports minus imports) are a component of gross domestic product. In the late 1980s and early 1990s, export growth was an important element in overall U.S. economic growth. In 2006, merchandise exports accounted for about 7.7% of GDP, compared with 5.9% in 1990. Recently, however, rising trade deficits have reduced total domestic demand in the economy, but the weakness in the trade sector has been offset by strong consumer, business, and government demand. Many economists fear that the rising U.S. trade and current account6 deficits could lead to a large drop in the value of the U.S. dollar. The current account deficit, while decreasing from 6.2% of GDP in 2006 to 5.1% of GDP in 2007, continues to place downward pressure on the dollar. A weakened dollar boosts exports by making them cheaper, narrowing the U.S. trade deficit. Compared to a Federal Reserve index of major currencies weighted by importance to U.S. trade, the dollar has lost a third of its value since 2002 (see Figure 2). The dollar has fallen against the euro, yen, British pound, Australian dollar, and Canadian dollar. In fact, the U.S. dollar fell to parity with the Canadian loonie in September 2007 for the first time in thirty years, and remains roughly in that range. Between July and November 2008, the U.S. dollar strengthened against other currencies as the global financial crisis increased "safe haven demand" for the dollar. Since November, the dollar has lost some value, partly due to the Federal Reserve's lowering of interest rates. 5 For further information on trade deficits and the macroeconomy, seeCRS Report RL31032, The U.S. Trade Deficit: Causes, Consequences, and Cures, by Craig K. ElwellandCRS Report RL33186, Is the U.S. Current Account Deficit Sustainable?, by Marc Labonte. 6 U.S. trade in goods and services plus net flows of investment income and remittances. ,seicnerruC rojaM ,daorB tsniagA ralloD .S.U dethgieW-edarT dnE-htnoM .2 erugiF 8002 rebotcO-0002 yraunaJ ,secidnI rentraP gnidarT tnatropmI rehtO dna Index 160 Other Important Trading Partners 140 120 100 80 Major Currencies 60 Broad 40 20 0 0 00 01 l-01 -02 l-02 -03 l-03 -04 l-04 -05 l-05 -06 l-06 -07 l-07 -08 -08 -0 l - an- n n n n n n l Ja n Ju J Ju Ja Ju Ja Ju Ja Ju Ja Ju Ja Ju Ja Ju Jan Ju Month-Year ./gro.defsiuolts.hcraeser//:ptth ,siuoL .tS fo knaB evreseR laredeF :ecruoS ,modgniK detinU ,anihC ,ocixeM ,napaJ ,adanaC ,aerA oruE :)001 = 7991 yraunaJ( xednI daorB :setoN ,aisenodnI ,ailartsuA ,senippilihP ,dnaliahT ,dnalreztiwS ,lizarB ,aisyalaM ,gnoK gnoH ,eropagniS ,aeroK ,nawiaT .aibmoloC dna elihC ,aleuzeneV ,anitnegrA ,nedewS ,aissuR ,aibarA iduaS ,learsI ,aidnI ,dnalreztiwS ,modgniK detinU ,napaJ ,adanaC ,aerA oruE :)001 = 3791 yraunaJ( xednI seicnerruC rojaM .nedewS dna ,ailartsuA ,eropagniS ,aeroK ,nawiaT ,anihC ,ocixeM :)001 = 7991 yraunaJ( xednI srentraP edarT tnatropmI rehtO ,anitnegrA ,aissuR ,aibarA iduaS ,learsI ,aidnI ,aisenodnI ,senippilihP ,dnaliahT ,lizarB ,aisyalaM ,gnoK gnoH .aibmoloC dna elihC ,aleuzeneV Although a weakened dollar helps to reduce U.S. trade imbalances, it also may reduce the dollar's attractiveness to foreign investors. If foreign investors stop offsetting the deficit by buying dollar- denominated assets, the value of the dollar could drop--possibly precipitously. In that case, U.S. interest rates would have to rise to attract more foreign investment; financial markets could be disrupted; and inflationary pressures could increase. In the International Monetary Fund's May 2006 consultation with the United States, for example, its directors reiterated their long-standing concerns about the large U.S. current account deficit. They stated that "there is broad agreement that the large U.S. current account deficit ... cannot be sustained indefinitely. Although a gradual adjustment is the most likely outcome, delaying progress increases the risk of fanning protectionist sentiment or disorderly foreign exchange market conditions."7 Currently, foreign investment in dollar assets along with purchases of securities by central banks of countries, such China and Japan, have been sufficient to keep the value of the dollar from falling too far. These central banks have intervened in currency markets to keep their exchange 7 IMF, 2005 Article IV Consultation with the United States of America. Concluding Statement of the IMF Mission. May 31, 2006. rates relatively stable with respect to the dollar, although Japan claims not to have intervened since spring of 2004. This intervention adds to the foreign currency reserves held by these countries. As of the end of December 2007, Japan's central bank held $948 billion in foreign currency reserves,8 and the Bank of China held $1,528 billion.9 In U.S. Treasury securities, as of December 2007, Japan held $581 billion and China $477 billion.10 On July 21, 2005, China announced a 2.1% revaluation of its currency, and the value of the renminbi has appreciated steadily from 8.2 to 7.0 renminbi per dollar (15%). Continuing in that range, on May 30, 2008, the renminbi was trading at 6.9 per dollar. A recent development in foreign country holdings of dollars and other reserve currencies is that some are turning toward creating sovereign wealth funds (SWFs). These are funds owned by governments that are invested in stocks, bonds, property, and other financial instruments denominated in dollars, euros, or other hard currency. For China, Japan, South Korea, Russia, and the oil-exporting nations of the Persian Gulf, the source of capital for these funds is coming from governmental holdings of foreign exchange. For China and Japan, for example, foreign exchange reserves have traditionally been invested by their respective central banks primarily in low- yielding but low-risk government bonds, i.e., U.S. Treasury securities. The purpose of sovereign wealth funds is to diversify investments and to earn a higher rate of return. For example, in September 2007, China created a sovereign wealth fund--the China Investment Corporation (CIC)--with initial capital of $200 billion. One of the largest SWFs, CIC already has bought a 10% ($3 billion) share (non-voting) of the initial public offering of the Blackstone Group, a U.S. private equity group. Morgan Stanley research estimates that such sovereign wealth funds could hold up to $12 trillion by 2015.11 Depending on how these funds are managed and what leverage they acquire, they could affect U.S. interest rates (foreign purchases of U.S. Treasury securities tend to reduce U.S. interest rates), corporate activities (if funds buy significant voting shares of companies), and foreign access to technology and raw materials. The U.S. trade deficit provides some of the foreign exchange that goes to finance these sovereign wealth funds.12 How long can the United States keep running trade deficits? U.S. deficits in trade can continue for as long as foreign investors are willing to buy and hold U.S. assets, particularly government securities and other financial assets.13 Their willingness depends on a complicated array of factors including the perception of the United States as a safe haven for capital, relative rates of return on investments, interest rates on U.S. financial assets, actions by foreign central banks, and the savings and investment decisions of businesses, governments, and households. The policy levers 8 Statistics on Japanese international reserves are released on a monthly basis by the Japanese Ministry of Finance and available at https://www.mof.go.jp/english/. 9 Statistics on Chinese international reserves are available from the Chinability website, a non-profit website that provides Chinese economic and business data and analysis, at http://www.chinability.com/. 10 Statistics on foreign holdings of U.S. Treasury securities are available at http://www.treasury.gov/tic/mfh.txt. For further information, seeCRS Report RS22331, Foreign Holdings of Federal Debt, by Justin Murray and Marc Labonte. 11 Morgan Stanley, Currencies, How Big Could Sovereign Wealth Funds Be by 2015? Morgan Stanley Research, May 3, 2007. 12 For more information on sovereign wealth funds, see CRS Report RL34336, Sovereign Wealth Funds: Background and Policy Issues for Congress, by Martin A. Weiss, CRS Report RL34337, China's Sovereign Wealth Fund, by Michael F. Martin. 13 See Mann, Catherine L. Is the U.S. Trade Deficit Sustainable? Washington, Institute for International Economics, 1999. 224 p. See also:CRS Report RL33274, Financing the U.S. Trade Deficit, by James K. Jackson.CRS Report RL31032, The U.S. Trade Deficit: Causes, Consequences, and Cures, by Craig K. Elwell. that influence these factors that affect the trade deficit are held by the Federal Reserve14 (interest rates) as well as both Congress and the Administration (government budget deficits and trade policy), and their counterpart institutions abroad. In the 110th Congress, legislation directed at the trade deficit is taking several strategies. Some address trade barriers by particular countries, particularly China. Others are aimed at preventing manipulation of exchange rates or at imposing import duties to compensate for the arguably undervalued Chinese currency.15 Other bills seek to find domestic substitutes for imported oil, or require the President or a policy group to take certain actions if the trade deficit exceeded a threshold amount (for instance, a bilateral trade deficit of $10 billion or 2% of GDP). Legislation is tracked in other CRS reports dealing with trade. ¢ The U.S. government compiles trade data in four different ways. The data on goods trade are first compiled on a Census basis. Bilateral and sectoral data are reported only on a Census basis. The Census numbers are then adjusted and reported monthly on a balance of payments (BoP) basis that includes adjustments for valuation, coverage, and timing and excludes military transactions. The data are finally reported in terms of national income and product accounts (NIPA). The NIPA data also can be further adjusted to include correcting for inflation to gauge movement in trade volumes as distinct from trade values. Conceptually, this procedure is analogous to adjusting macroeconomic data from nominal to real values. The Census Bureau also reports imports on a c.i.f. (cost, insurance, and freight) basis which includes the value of insurance, international shipping, and other charges incurred in bringing merchandise to U.S. ports of entry. The customs (or f.a.s.--free alongside ship) data do not include these supplementary costs. U.S. import data are reported on a customs basis with insurance and freight charges counted in U.S. services trade. Other countries, however, commonly report merchandise import figures that include insurance and freight charges. This tends to overstate their imports and understate their trade surpluses with the United States. The merchandise (goods) trade balance is the most widely known and frequently used indicator of U.S. international economic activity (see Figure 3). In 2007, total U.S. merchandise trade amounted to $3,116 billion, an 8% increase from $2,884 billion in 2006. Merchandise exports in 2007 totaled $1,148 billion, while imports reached $1,965 billion (BoP basis). The U.S. merchandise trade deficit declined 2.3% from $838 billion in 2006 to $819 billion in 2007. Prior to this, the merchandise deficit increased in double-digit rates by 22% in 2004 and 18% in 2005. The deficit increase slowed in 2006, increasing by only 6.5%. The rate of increase in the deficit, therefore, has tapered off. 14 For details, seeCRS Report RS20826, Structure and Functions of The Federal Reserve System, by Pauline Smale. 15 For legislation related to trade with China and the Chinese currency, seeCRS Report RL33536, China-U.S. Trade Issues, by Wayne M. Morrison dna ,ecnalaB edarT,stropmI ,stropxE esidnahcreM .S.U .3 erugiF 7002-2891 ,xednI etaR egnahcxE ralloD evitceffE laeR .FMI :ecremmoC fo tnemtrapeD .S.U :ecruoS .001+5991 ,etaR egnahcxE :etoN U.S. merchandise exports (as shown in Table 1 and Figure 4, decreased in 2001 and 2002 in response to the global slowdown, but generally have been increasing each year. As shown in Figure 4, the growth of imports has also been steady, although they too fell by 4.4% in 2001 before recovering in 2002. In 2003, import growth was nearly double export growth, although in 2004, export growth almost caught up with that of imports, and in 2005, the rate of increase for both dropped slightly (11% for exports and 14% for imports). In 2006, exports grew by 14%, while imports grew by 11%. Growth in exports and imports slowed in 2007, with exports rising by 12.3% and imports by 5.7%. Exports grew faster than imports, but the trade deficit still increased. This is because U.S. imports are about 71% greater than U.S. exports, so exports must grow about 71% faster than imports just for the deficit to remain constant. .seicnega yratilim .S.U yb stropmi gnitcartbus dna ,srelaed etavirp .S.U ot selas dlog laiciffo ngierof dna adanaC ni thgierf dnalni ni gnidda edulcni stnemtsujda tropmI .srelaed etavirp .S.U morf selas dlog laiciffo ngierof dna ,slecrap tfig etavirp gnidda ,sdoog ton secivres sa selas yratilim gnitnuoc edulcni stnemtsujda tropxE .noitinifed dradnats a ot gnidrocca snoitcasnart eulav ot dna ,noitacilpud etanimile ot ,setatS detinU eht fo yrotirret smotsuc eht fo tuo ro otni gnissap sdoog tuohtiw rucco taht pihsrenwo ni segnahc edulcni ot sisab PoB a ot detsujda era sisab susneC a no sdooG :etoN .ataD stnuoccA snoitcasnarT lanoitanretnI .S.U ,sisylanA cimonocE fo uaeruB ,ecremmoC fo tnemtrapeD .S.U :ecruoS 4.918- 9.769,1 5.841,1 5.497- 0.759,1 5.261,1 7002 3.838- 4.168,1 1.320,1 3.718- 9.358,1 6.630,1 6002 2.787- 8.186,1 6.498 5.767- 5.376,1 0.609 5002 6.966- 1.774,1 5.708 9.056- 7.964,1 8.818 4002 6.745- 7.062,1 1.317 3.235- 1.752,1 8.427 3002 9.284- 7.461,1 8.186 1.074- 6.361,1 5.396 2002 2.724- 9.541,1 7.817 4.114- 3.241,1 9.037 1002 4.254- 4.422,1 0.277 1.634- 0.812,1 9.187 0002 0.643- 0.030,1 0.486 8.823- 6.420,1 8.596 9991 7.642- 1.719 4.076 8.922- 9.119 1.286 8991 1.891- 5.678 4.876 5.081- 7.968 2.986 7991 0.191- 1.308 1.216 2.071- 3.597 1.526 6991 2.471- 4.947 2.575 8.851- 5.347 7.485 5991 8.561- 7.866 9.205 6.051- 2.366 6.215 4991 5.231- 4.985 9.654 7.511- 5.085 8.464 3991 9.69- 5.635 6.934 4.48- 6.235 2.844 2991 9.67- 0.194 1.414 3.56- 1.784 8.124 1991 0.111- 4.894 4.783 3.201- 2.594 9.293 0991 8.711- 7.774 9.953 5.011- 4.374 9.263 9891 0.721- 2.744 2.023 6.811- 9.144 3.323 8891 6.951- 8.904 2.052 4.251- 3.604 9.352 7891 1.541- 4.863 3.322 3.931- 7.563 4.622 6891 2.221- 1.833 9.512 8.321- 4.633 6.212 5891 5.211- 4.233 9.912 8.111- 5.033 7.812 4891 1.76- 9.862 8.102 0.06- 7.162 7.102 3891 4.63- 6.742 2.112 6.13- 9.342 3.212 2891 b a b a ecnalaB edarT )smotsuc( ).s.a.f( ecnalaB edarT )smotsuc( ).s.a.f( raeY stropmI stropxE stropmI stropxE sisab stnemyap fo ecnalaB sisab susneC )sra llod .S.U fo snoillib( 7002-2891 ,secnalaB edarT esidnahcreM dna ,stropmI ,stropxE .S.U . 1 elbaT dna tropxe fo trop eht ta eulav pihs edisgnola eerf eht ot srefer hcihw ,sisab .s.a.f na no deulav era stropxE .a eht edisgnola sdoog eht gnicalp ni derrucni segrahc rehto dna ,ecnarusni ,thgierf dnalni edulcni yllareneg .noitatropxe fo trop eht ta reirrac tropmi edulcxe dna ,sisab smotsuC sa nwonk ,ecivreS smotsuC .S.U eht yb detroper sa deulav era stropmI .b detinU eht ot esidnahcrem gnignirb ni derrucni segrahc rehto dna ,ecnarusni ,thgierf fo tsoc eht ,seitud .setatS Like other economic variables, exports and imports, reported in terms of their values, can change merely because prices change. Trade data, therefore, can be adjusted for inflation by dividing by a chained price index (chained price indexes are weighted by two-year averages) to generate real or volume data (some trade commodities actually are reported in volume terms [e.g., tons of wheat]). The real data provide a more accurate picture of how the underlying flows of merchandise are changing. As with the nominal trade deficit, the real deficit has begun to decrease. sdooG fo ecnalaB edarT dna ,stropxE ,stropmI .S.U laeR .4 erugiF 7002-0991 ,)srallod 0002 deniahc( ,atad stnuoccA stcudorP dna emocnI lanoitaN .sisylanA cimonocE fo uaeruB .S.U morf atad htiw SRC :ecruoS ./vog.aeb.www//:ptth ,6.2.4 elbaT As shown in Table 2 and http://www.bea.gov/. Figure 5, the constant-dollar value, or physical volume, of merchandise exports increased by 9.9% in 2006, up from 7.5% in 2005 and 9.0% in 2004. The physical volume of imports rose by 6.0% in 2006, down from 6.6% in 2005 and 11.3% in 2004, but up from 4.9% in 2003. Because the growth of merchandise imports is higher than the growth of exports and because imports exceed exports by more than 80% on a physical volume basis, exports would have to grow more than 80% faster than imports just for the U.S. trade deficit in terms of volume to remain constant. In 2005 and 2006, export growth actually exceeded import growth, but the deficit still increased. In recent years, the deficit in volume terms has varied relative to the deficit in value terms partly because of fluctuations in oil import prices (when oil prices rise, the deficit in value rises relative to that in volume terms). reM .S.U .2 elbaT 7002-1002 ,smreT emuloV ni edarT esidnahc ) s r a l l o d 0 0 0 2 d e ni a h c f o s n o i l l i b ( tropxE tropmI edarT laeR raeY stropxE htworG stropmI htworG ecnalaB 1002 3.637 1.6- 1.402,1 2.3- 8.764- 2002 0.707 0.4- 2.842,1 7.3 2.145- 3002 8.917 8.1 3.903,1 9.4 5.985- 4002 4.487 0.9 0.754,1 3.11 6.276- 5002 5.348 5.7 6.355,1 6.6 1.017- 6002 4.729 9.9 9.646,1 0.6 5.917- 7002 8.000,1 9.7 5.376,1 6.1 7.276- ,atad stnuoccA stcudorP dna emocnI lanoitaN ,sisylanA cimonocE fo uaeruB morf snoitaluclac SRC :ecruoS ./vog.aeb.www//:ptth ,6.2.4 elbaT .ecremmoC fo tnemtrapeD .S.U morf atad gniylrednU :ecruoS 7002-2891 ,stropmI dna stropxE esidnahcreM .S.U ni htworG launnA . 5 erugiF The current account provides a broader measure of U.S. trade because it includes services, investment income, and unilateral transfers in addition to merchandise trade (see). The balance on services includes travel, transportation, fees and royalties, insurance payments, and other government and private services. The balance on investment income includes income received on U.S. assets abroad minus income paid on foreign assets in the United States. Unilateral transfers are international transfers of funds for which there is no quid pro quo. These include private gifts, remittances, pension payments, and government grants (foreign aid). Data on the current account lag those on trade by several months. ,secnalaB edarT esidnahcreM dna tnuoccA tnerruC .S.U .6 erugiF 7002-2891 .tnuoccA snoitcasnarT lanoitanretnI .S.U ,sisylanA cimonocE fo uaeruB .S.U morf atad htiw SRC :ecruoS Table 3 summarizes the components of the U.S. current account. In 2006, the U.S. deficit on current account increased to $811.5 billion from $754.8 billion in 2005. As a share of U.S. GDP, this deficit rose to 6.2% in 2006. In 2007 the U.S. deficit on current account decreased to $738.6 billion, or 5.3 % of GDP. This remains above the caution level used by the International Monetary Fund of 5%. Since the dollar is used as an international reserve currency, however, the United States can run trade deficits without the same downward pressure on the value of the dollar as other nations. Historically, the current account deficit fell from a then record-high $160.7 billion in 1987 to $79.0 billion in 1990, and switched to a $3.7 billion surplus in 1991 (primarily because of payments to fund the Gulf War by Japan and other nations). However, since a slight decline in 1995, the current account deficit has been increasing significantly except for a slight dip in 2001 because of the U.S. recession and a similar situation in 2007. registered a $79.7 billion surplus in 2006 and $106.9 billion surplus in 2007. Since Americans are tend to track each other. Unlike the merchandise trade balance, however, the services account Because the merchandise trade balance comprises the greater part of the current account, the two .gnidnuor fo tluser a sa ylthgils reffid yam ,ecnalab tnuocca tnerruc eht ot lauqe yllautpecnoc hguohtla ,srefsnart laretalinu ten sulp ecnalab emocni tnemtsevni sulp ecnalab ecivres eht sulp ecnalab edart ehT .e .ouq orp diuq on si ereht hcihw rof stnarg tnemnrevog dna ,stnemyap noisnep ,stfig etavirp sa hcus ,sdnuf fo srefsnart lanoitanretnI .d .setatS detinU eht ni stessa ngierof no stnemyap emocni sunim daorba stessa .S.U no stpiecer emocnI .c .emocni tnemtsevni dna ,secivres etavirp dna tnemnrevog rehto ,stnemyap ecnarusni ,seitlayor dna seef ,noitatropsnart ,levart sedulcnI .b .sisab PoB a nO .a .3=di_aera&1=di_elbat&56386=nona?mfc.elpmis/bew_pb/lanoitanretni/aeb/vog.aeb.www//:ptth ta tenretnI eht nO .snoitcasnarT lanoitanretnI .S.U ,sisylanA cimonocE fo uaeruB .S.U :ecruoS 2.137- 7.211- 7.18 1.911 4.918- 7002 1.887- 0.29- 2.75 0.58 3.838- 6002 0.927- 8.98- 4.27 6.57 1.787- 5002 0.526- 5.48- 2.76 8.16 6.966- 4002 4.325- 8.17- 3.54 0.45 9.055- 3002 3.164- 9.46- 4.72 2.16 0.584- 2002 4.983- 9.15- 2.52 5.46 2.724- 1002 4.614- 8.85- 0.12 1.47 4.254- 0002 1.003- 6.05- 9.31 6.28 0.643- 9991 9.412- 2.35- 3.4 7.18 7.642- 8991 9.041- 2.54- 6.21 8.98 1.891- 7991 2.021- 6.83- 3.22 1.78 0.191- 6991 5.901- 1.43- 9.02 9.77 2.471- 5991 0.811- 8.63- 1.71 4.76 8.561- 4991 0.28- 1.73- 3.52 3.26 5.231- 3991 0.84- 1.33- 2.42 8.75 9.69- 2991 7.3 8.01 1.42 8.54 9.67- 1991 0.97- 7.62- 6.82 2.03 0.111- 0991 5.99- 2.62- 8.91 6.42 7.711- 9891 2.121- 3.52- 7.81 4.21 0.721- 8891 7.061- 3.32- 3.41 9.7 6.951- 7891 2.741- 1.42- 5.51 5.6 1.541- 6891 2.811- 0.22- 7.52 3.0 2.221- 5891 eecnalaB dsrefsnarT cecnalaB becnalaB aecnalaB raeY tnuoccA laretalinU emocnI secivreS edarT radnelaC tnerruC teN tnemtsevnI esidnahcreM ) s r al l o d f o s n o i l l i b ( 7002-5891 :secnalaB tnuoccA tnerruC .S. U .3 elbaT such large investors in foreign economies, the United States traditionally also has a surplus in its investment income. The deficit in unilateral transfers (primarily dollars sent abroad by foreign workers and recent immigrants) totaled $89.6 billion in 2006 and $104.4 billion in 2007. Unilateral transfers have now reached more than triple the level of the late 1980s. According to Global Insight, Inc., a leading U.S. economic forecasting firm, in 2008 the U.S. merchandise (goods) trade deficit is projected to decline to about $931.9 billion on a balance of payments basis and to stay at the level for 2009 and 2010 (see Table 4 and Figure 7). The U.S. current account deficit declined from the peak of $811.5 billion in 2006 to $749.6 billion in 2007. The current account deficit is forecasted to increase to $763.6 billion 2008 and then to decrease in 2009 and 2010. ,edarT tnuoccA tnerruC dna esidnahcreM .S.U .4 elbaT )tsaceroF( 0102 ot 3002 )sra llod .S.U fo snoillib( 3002 4002 5002 6002 7002 8002 9002 0102 edarT esidnahcreM stropxE lautcA 4.317 5.708 6.498 1.320,1 5.841,1 -- -- -- detsaceroF -- -- -- -- -- 8.033,1 7.182,1 1.4921 stropmI lautcA 3.4621 1.7741 8.186,1 4.168,1 9.769,1 -- -- -- detsaceroF -- -- -- -- -- 1.541,2 8.327,1 2.098,1 ecnalaB edarT lautcA 9.055- 6.966- 1.787- 3.838- 4.918- -- -- -- detsaceroF -- -- -- -- -- 7.797- 9.924- 8.185- ecnalaB edarT secivreS lautcA 0.45 8.16 6.57 0.58 1.911 -- -- -- detsaceroF -- -- -- -- -- 4.741 2.561 1.571 ecnalaB tnuoccA tnerruC lautcA 4.325- 0.526- 0.927- 1.887- 2.137- -- -- -- detsaceroF -- -- -- -- -- 7.976- 0.243- 0.984- .)sisab PoB( thgisnI labolG dna sisylanA cimonocE fo uaeruB .S.U :secruoS eM .S.U .7 erugiF tsaceroF( 0102-7991 ,sticifeD tnuoccA tnerruC dna edarT esidnahcr )sralloD tnerruC ni $Billions 200 Actual Forecast 0 -200 -400 Goods Trade -600 -800 Current Account -1000 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 Year .)sisab PoB( thgisnI labolG dna sisylanA cimonocE fo uaeruB .S.U :secruoS The overall U.S. merchandise trade balance consists of deficits or surpluses with each trading partner. Many economists view the overall figure as more significant than bilateral trade balances, since rising deficits with some nations are often offset by declining deficits or growing surpluses with others. Nonetheless, abnormally large or rapidly increasing trade deficits with particular countries are often viewed as indicators that underlying problems may exist with market access, the competitiveness of particular industries, currency misalignment, or macroeconomic adjustment. Figure 8 and Table 5 show U.S. trade balances with selected nations. 7002 ,snoitaN detceleS htiW secnalaB edar esidnahcreM .S.U .8 erugiF T .)sisab susneC( ecremmoC fo tnemtrapeD .S.U eht morf atad htiw SRC :ecruoS Most of the U.S. trade deficit can be accounted for by trade with China, Japan, Mexico, Canada, and Germany. Trade with the oil exporting countries, particularly Nigeria, Venezuela, and Saudi Arabia, also is in deficit. U.S. trade surpluses occur in trade with the Netherlands, Hong Kong, Australia, and the United Arab Emirates. The U.S. trade deficit with China has soared over the past decade. From $32 billion in 1995 to $100 billion in 2000 and $256 billion in 2007, the negative net balance in trade with China has grown to account for nearly 30% of the total U.S. trade deficit.16 The U.S. trade deficit with China exceeded that with Japan for the first time in the year 2000 and now is more than three times as large. China claims that its trade is less imbalanced than U.S. data indicate. Chinese trade data differ from those of the United States primarily because of the treatment of Hong Kong as an entrepot. Since Hong Kong is a separate customs area from mainland China, Beijing counts Hong Kong as the destination for its exports sent there, even though the goods may be transshipped to other markets. For example, China would count a laptop computer that is assembled in Shanghai but shipped through Hong Kong before being exported to the United States as a sale to Hong Kong. By contrast, the United States and many of China's other trading partners count Chinese exports that are transshipped through Hong Kong as products from China not Hong Kong, including 16 For details and policy discussion, seeCRS Report RL31403, China's Trade with the United States and the World, by Thomas Lum and Dick K. Nanto, orCRS Report RL33536, China-U.S. Trade Issues, by Wayne M. Morrison. 789,211- 982,501- 768,29- 348,17- 460,15- 334,43- CEPO 678- 755,2- 783,3- 157,2- 926,2- 220,2- aibmoloC 910,1- 631,7- 460,9- 362,7- 996,6- 504,3- lizarB 963,1 797 264- 753- 237- 206,1- anitnegrA 543,72- 607,44- 064,05- 381,73- 388,62- 259,71- seirtnuoC naciremA lartneC/htuoS 819,21- 263,31- 610,61- 557,91- 751,31- 699,21- aeroK fo cilbupeR 869,11- 561,51- 757,21- 978,21- 251,41- 667,31- nawiaT 290,31 928,9 954,7 315,6 966,4 662,3 gnoK gnoH 198,7 619,6 235,5 832,4 224,1 614,1 eropagniS 409,3- 387,11- 287,51- 388,12- 712,12- 080,22- )SCIN( seirtnuoC dezilairtsudnI ylweN 702,652- 985,232- 545,102- 839,161- 860,421- 560,301- anihC 067,28- 865,88- 915,28- 265,57- 230,66- 979,96- napaJ 954,663- 266,315- 322,964- 892,504 968,133 071,013- seirtnuoC miR cificaP 949,11- 721,51- 443,11- 039,8- 171,6- 374,4- aissuR 065,41 787,31 326,11 938,11 247,9 264,8 sdnalrehteN 878,02- 901,02- 584,91- 314,71- 458,41- 461,41- ylatI 041,41- 228,21- 234,11- 243,01- 661,21- 422,9- ecnarF 315,44- 367,74- 765,05- 058,54- 182,93- 678,53- ynamreG 926,6- 301,8- 544,21- 472,01- 769,8- 045,7- modgniK detinU 861,701- 612,711- 321,321- 999,901- 125,89- 773,68- 72 noinU naeporuE 770,121- 610,321- 962,231- 709,911- 306,501- 553,39- eporuE 226,47- 472,46- 447,94- 760,54- 846,04- 641,73- ocixeM 961,86- 287,17- 684,87- 084,66- 176,15- 561,84- adanaC 197,241- 650,631- 032,821- 745,111- 913,29- 113,58- aciremA htroN 384,497- 403,718- 774,767- 039,056- 053,235- 362,864- latoT 7002 6002 5002 4002 3002 2002 yrtnuoC )sisab su sneC ,sra ll od .S .U fo snoillim( 7002 -2002 ,spuorG dna snoitaN detceleS htiw secnalaB edar esidnahcreM .S.U .5 elba T T reported U.S. deficit with China of $256 billion. reported trade surplus with the United States at $163 billion in 2007 is a little over 60% of the Chinese figures, Chinese exports to the U.S. tend to be understated. The net result is that China's exports to China. So by U.S. figures, U.S. exports to China tend to be understated, while by then reexported to China. However, the PRC counts many of such reexported goods as U.S. States also counts Hong Kong as the destination of U.S. products sent there, even those that are goods that contain Hong Kong components or involve final packaging in Hong Kong. The United 420,31 494,4 035,8- nedewS 336,01 309,1 037,8- manteiV 693,11 065,1 538,9- qarI 103,41 532,4 660,01- aisenodnI 805,21 082,1 722,11- alognA 413,91 563,7 949,11- aissuR 872,83 903,62 869,11- nawiaT 265,74 546,43 819,21- aeroK 355,14 314,72 041,41- ecnarF 557,22 554,8 003,41- dnaliahT 618,71 256,1 461,61- aireglA 820,53 051,41 878,02- ylatI 926,23 086,11 849,02- aisyalaM 544,03 900,9 634,12- dnalerI 626,53 693,01 032,52- aibarA iduaS 019,93 102,01 907,92- aleuzeneV 077,23 877,2 299,92- airegiN 461,49 156,94 315,44- ynamreG 750,713 888,842 961,86- adanaC 417,012 290,631 226,47- ocixeM 364,541 407,26 067,28- napaJ 344,123 632,56 702,652- anihC stropmI .S.U stropxE .S.U ecnalaB .S.U yrtnuoC )sra ll od .S .U fo snoillim( 7002 ,srent raP gnidar ticifeD esidnahcreM .S.U po .6 elba T T T deficit trading partners are Japan, Mexico, Canada, Germany, and Nigeria. 2000, China overtook Japan as the top U.S. deficit trading partner. After, China, the next highest Table 6 lists the U.S. top deficit trading partners in merchandise trade, on a Census basis. In .)eulav smotsuC( stropmI lareneG sunim )eulav .s.a.f( stropxE latoT slauqe ecnalaB edarT :etoN .8002 ,01 enuJ desaeler ,)40-80( 009-TF ,7002 rof noisiveR launnA secivreS dna sdooG ni edarT lanoitanretnI .S.U ees ,liated rehtruf dna seirtnuoc rehto roF .scitsitatS edarT ngieroF ,uaeruB susneC setatS detinU :secruoS 299,92- 036,52- 816,22- 496,41- 773,9- 888,4- airegiN 032,52- 940,42- 083,02- 207,51- 374,31- 963,8- aibarA iduaS 660,01- 643,01- 069,8- 931,8- 999,6- 780,7- aisenodnI 907,92- 131,82- 755,72- 351,02- 503,41- 466,01- aleuzeneV 7002 6002 5002 4002 3002 2002 yrtnuoC 2.299,92- 2.077,23 0.877,2 2.845,53 airegiN 02 2.634,12- 0.544,03 9.800,9 9.354,93 dnalerI 91 5.800,01 2.182,51 7.982,52 9.075,04 muigleB 81 7.484,6- 3.370,42 5.885,71 8.166,14 aidnI 71 3.849,02- 5.826,23 2.086,11 7.803,44 aisyalaM 61 5.098,7 7.393,81 2.482,62 8.776,44 eropagniS 51 1.032,52- 0.626,53 9.593,01 9.120,64 aibarA iduaS 41 0.878,02- 6.720,53 6.941,41 3.771,94 ylatI 31 1.907,92- 6.909,93 5.002,01 1.011,05 aleuzeneV 21 6.810,1- 2.446,52 6.526,42 7.962,05 lizarB 11 0.065,41 1.304,81 2.369,23 3.663,15 sdnalrehteN 01 4.869,11- 6.772,83 2.903,62 8.685,46 nawiaT 9 2.041,41- 7.255,14 5.214,72 3.569,86 ecnarF 8 5.719,21- 3.265,74 8.446,43 1.702,28 htuoS ,aeroK 7 9.826,6- 5.758,65 7.822,05 2.680,701 modgniK detinU 6 1.315,44- 1.461,49 0.156,94 1.518,341 ynamreG 5 9.957,28- 3.364,541 5.307,26 8.661,802 napaJ 4 8.126,47- 0.417,012 1.290,631 1.608,643 ocixeM 3 7.602,652- 9.244,123 1.632,56 0.976,683 anihC 2 7.861,86- 8.650,713 1.888,842 9.449,565 adanaC 1 ecnalaB stropmI .S.U stropxE .S.U edarT latoT yrtnuoC knaR )sra ll od .S .U fo snoillim( 7002 ni edar esidnahcreM lato yb deknaR srent raP gnidar .S.U po .7 elba T T T T T ranked export market. with Mexico second. In 2007 China passed Japan to become third. Japan is now our fourth- before, but in 2007 China surpassed Canada. By far, Canada is the top purchaser of U.S. exports trade in 2006 to number 14 in 2007. Canada was the largest supplier of U.S. imports in 2006 and United Kingdom, Korea, Taiwan and France. Malaysia dropped from number 10 in total U.S. merchandise trading partner. Canada was followed by China, Mexico, Japan, Germany, the plus imports. As shown in Table 7, in 2007, as in 2006, Canada was America's largest total Table 7 lists the United States' top trading partners ranked by trade turnover, defined as exports .smotsuC deulav era stropmi ;.s.a.f deulav era stropxE .sisab susneC a no era ataD :etoN .)40-80( 009 TF ,secivreS dna sdooG ni edarT lanoitanretnI .S.U .ecremmoC fo tnemtrapeD .S.U :ecruoS 097,8 087,1 010,7- ogaboT dna dadinirT 966,01 271,3 794,7- airtsuA 497,02 910,31 577,7- learsI stropmI .S.U stropxE .S.U ecnalaB .S.U yrtnuoC .setatS detinU eht ni stessa ngierof no stnemyap emocni sunim daorba stessa .S.U no stpiecer emocnI .c .emocni tnemtsevni dna ,secivres etavirp dna tnemnrevog rehto ,stnemyap ecnarusni ,seitlayor dna seef ,noitatropsnart ,levart sedulcnI .b .sisab PoB a nO .a .ataD tnuoccA snoitcasnarT lanoitanretnI ,sisylanA cimonocE fo uaeruB .S.U :ecruoS 0.94- 0.21- 3.3- 1.0 8.33- tsaE elddiM 5.58- 0.03- 1.72 8.22 3.501- aciremA nitaL modgniK 2.11 5.4 2.2- 5.61 6.7- detinU 2.15- 2.1- 2.1 0.6- 3.54- ynamreG 4.24- 7.4- 6.93 7.63 9.311- noinU naeporuE 0.01- 6.0- 2.0- 8.4 9.31- aeroK .S 3.011- 2.1 2.14- 0.51 1.58- napaJ 7.982- 4.2- 1.63- 4.5 6.652- anihC 7.544- 0.12- 5.74- 1.33 3.014- cificaP dna aisA 3.73- 7.1- 9.61 1.81 6.07- adanaC 5.08- 5.21- 6.1 0.8 6.77- ocixeM 2.137- 7.211- 7.18 1.911 4.918- seirtnuoC llA eecnalaB dsrefsnarT cecnalaB becnalaB aecnalaB yrtnuoC tnuoccA laretalinU emocnI secivreS edarT tnerruC teN tnemtsevnI esidnahcreM )sra llod .S.U fo snoillib( 7002 ,srentraP gnidarT.S.U detceleS htiW secnalaB tnuoccA tnerruC .S.U .8 elbaT balances are quite different from bilateral balances on merchandise trade only. current account have become more important. In many cases, the bilateral current account flows, as the economy has become more globalized and service-oriented, these components of the investments, and remittances home by foreign workers are considerably smaller than merchandise account balances for selected U.S. trading partners. While trade in services, flows of income from Table 8 lists trade balances on goods, services, and income, net unilateral transfers and current .smotsuC deulav era stropmi ;.s.a.f deulav era stropxE .sisab susneC a no era ataD .stropxe + stropmi=edart latoT :setoN .)40-80( 009 TF ,secivreS dna sdooG ni edarT lanoitanretnI .S.U .ecremmoC fo tnemtrapeD .S.U :ecruoS 8.190,31 0.620,7 8.711,02 8.341,72 gnoK gnoH 52 7.695,01 0.516,8 7.112,91 8.628,72 ailartsuA 42 0.003,41- 7.457,22 6.454,8 3.902,13 dnaliahT 32 1.972,2 2.067,41 3.930,71 5.997,13 dnalreztiwS 22 1.577,7- 4.497,02 3.910,31 8.318,33 learsI 12 ecnalaB stropmI .S.U stropxE .S.U edarT latoT yrtnuoC knaR .d hcihw rof stnarg tnemnrevog dna ,stnemyap noisnep ,stfig etavirp sa hcus ,sdnuf fo srefsnart lanoitanretnI .ouq orp diuq on si ereht .e ,srefsnart laretalinu ten sulp ecnalab emocni tnemtsevni sulp ecnalab ecivres eht sulp ecnalab edart ehT .gnidnuor fo tluser a sa reffid yam ,ecnalab tnuocca tnerruc eht ot lauqe hguohtla Country data for current account are now final for 2007. Since Japan has invested considerable amounts in securities, equities, and in factories in the United States, the United States ran a deficit of $41.2 billion in investment income with that country in 2007. This more than offset the surplus of $15 billion in trade in services with Japan. As a result, the current account deficit with Japan of $110.3 billion in 2007 exceeded the bilateral merchandise trade deficit of $85.1 billion. Likewise with China; the U.S. deficit on investment income of $36.1 billion far overshadowed the U.S. surplus of $5.4 billion in services. In 2007, a different situation existed with the European Union and Canada. The United States earned a $39.6 billion surplus in investment income with the EU in 2007, greater than 2006 investment income surplus of $12.6 billion. In 2007, the U.S. surplus in services with the EU came to $36.7 billion. These two flows offset a merchandise deficit of $113.9 billion to produce a U.S. current account deficit of $42.4 billion, lower than the 2006 current account deficit of $86.9 billion. From Canada the United States received $16.9 billion in investment income plus a surplus in services trade of $18.1 billion. Hence, the current account deficit with Canada at $37.3 billion was lower than the $70.6 billion merchandise trade deficit. The rising deficit with many countries in investment income reflects the accumulating debt relative to the world of the United States. Inflows of capital to compensate for the U.S. trade deficit and low U.S. savings rate help to maintain the value of the dollar, but interest paid and other income that accrues to that capital is often repatriated to the home countries. That means more capital must be invested in the United States or the United States must export more to compensate for the outflows of investment income. In 2007, the overall U.S. balance on investment income registered a surplus of $81.7 billion, higher than the 2006 balance on investment income of $57.2 billion. Imbalances in investment income with certain countries have been growing and could become a problem in the future. ¢ Table 9 shows U.S. trade in advanced technology products. This includes about 500 commodity classification codes representing products whose technology is from a recognized high technology field (e.g., biotechnology) or that represent the leading technology in a field. The United States long ran a surplus in these products, but that surplus dropped sharply in 2000 and turned into a deficit in 2002. The U.S. trade balance in high technology products was last in surplus in 2001. In 2002 to 2005, the U.S. ran a trade deficit in high technology products which grew roughly ten billion dollars per year, from $16.6 billion to $43.6 billion. In 2006 this deficit dropped to $38.1 billion, but in 2007 resumed its former path of growing ten billion dollars per year, to $52.6 billion. This 2007 deficit represents about a 40% increase over 2006. This does not necessarily imply the United States is losing the high technology race, since many of the high technology imports are from U.S. companies (particularly electronics manufacturers) who assemble the products overseas. However, this growing deficit may warrant closer policy scrutiny. Issues, by Stephen Cooney and Brent D. Yacobucci. For information on the automobile industry, seeCRS Report RL32883, U.S. Automotive Industry: Recent History and 17 $120,941 million deficit in 2007, a nearly 17% change.17 U.S. trade balance in motor vehicles improved from a $144,990 million deficit in 2006 to a the largest deficits in this trade with Japan, Mexico, Germany, South Korea, and Canada. The 2007. This does not include foreign cars assembled in the United States. The United States incurs Table 10 provides data on trade in passenger cars with major automobile producing nations for .sisab PoB a no era ataD .edoc noitacifissalc detceles eht ni derevoc smeti lla fo trap tnacifingis a etutitsnoc )3( dna ,dleif taht ni ygolonhcet egde gnidael tneserper )2( ,)ygolonhcetoib ,.g.e( dleif ygolonhcet hgih dezingocer a morf si ygolonhcet esohw stcudorp sniatnoc )1( :airetirc gniwollof eht teem taht sedoc noitacifissalc ytidommoc 000,22 emos fo 005 tuoba sedulcnI :setoN .ylhtnom deussi ,009-TF .secivreS dna sdooG ni edarT lanoitanretnI .S.U .susneC eht fo uaeruB .S.U :ecruoS 6.25- 8.623 2.472 7002 1.83- 8.092 7.252 6002 6.34- 7.952 1.612 5002 9.63- 3.832 4.102 4002 8.62- 0.702 2.081 3002 6.61- 2.591 6.871 2002 8.4 3.591 1.002 1002 3.5 1.222 4.722 0002 1.91 2.181 3.002 9991 6.92 8.651 4.681 8991 2.23 3.741 5.971 7991 5.42 4.031 9.451 6991 6.31 8.421 4.831 5991 1.43 3.95 4.39 0991 ecnalaB edarT stropmI .S.U stropxE .S.U raeY )sra llod .S.U fo snoilli b( stcudorP ygolonhceT decnavdA ni edarT.S.U .9 elbaT Jackson. For policy discussion, seeCRS Report RS22204, U.S. Trade Deficit and the Impact of Rising Oil Prices, by James K. 18 896,53 216,2 aybiL 527,16 457,3 tiawuK 116,17 063,4 rodaucE 826,171 478,01 qarI 999,281 031,21 alognA 636,402 605,41 aireglA 276,714 288,03 airegiN 971,715 341,23 aleuzeneV 573,615 078,33 aibarA iduaS 303,091,2 938,541 latoT CEPO 366,218,3 177,542 dlroW latoT )slerrab dnasuoht( )noillim $( yrtnuoC ytitnauQ eulaV smotsuC )eul av smotsuc dna ytitnauq( 7002 ,seirtnuoC detceleS morf liO edurC fo stropmI .S.U .11 elbaT Mexico.18 2007. Over 40% of U.S. petroleum imports come from non-OPEC sources, primarily Canada and Nigeria the predominant suppliers. Imports from Iraq are recovering with $11 billion worth in Organization of the Petroleum Exporting Countries (OPEC) with Saudi Arabia, Venezuela, and imported $246 billion in crude oil or 13% of all imports. Roughly half comes from the Table 11 shows imports of crude petroleum by major country source. In 2007, the United States .)40-80( 009-TF ,secivreS dna sdooG ni edarT lanoitanretnI .S.U ,susneC eht fo uaeruB .S.U :ecruoS 349,2- 054,5 705,2 modgniK detinU 769,4- 008,56 338,06 adanaC 473,01- 213,11 839 aeroK 156,51- 235,42 188,8 ynamreG 837,03- 729,94 981,91 ocixeM 169,25- 672,55 513,2 napaJ 149,021- 265,542 126,421 dlroW latoT ecnalaB edarT stropmI .S.U stropxE .S.U rentraP gnidarT )sra ll od .S .U fo snoillim( 7002 ,seirtnuoC detceleS yb st raP dna selciheV rotoM ni edar .S.U .01 elba T T yrtnuoC eulaV smotsuC ytitnauQ )noillim $( )slerrab dnasuoht( aisenodnI 474 574,7 setarimE barA detinU 332 703,3 rataQ 0 0 narI 0 0 latoT CEPO-noN 239,99 953,226,1 adanaC 033,83 837,066 ocixeM 325,03 660,705 lizarB 167,3 917,95 aibmoloC 845,3 228,15 aissuR 961,3 782,54 ognoC 598,2 479,04 modgniK detinU 345,2 464,63 dahC 701,2 858,53 nobaG 990,2 721,03 CEPO-noN rehtO 759,01 403,451 edarT dlroW dna ,ylhtnom deussi ,009-TF ,secivreS dna sdooG ni edarT lanoitanretnI .S.U ,uaeruB susneC .S.U :secruoS .lio edurc rof 009072 )SH( eludehcS dezinomraH gnisu ,saltA .atad sisab susneC :etoN This section of the report addresses a few common perceptions about trade that can be validated by data. A common perception is that an increasing amount of U.S. imports are actually goods manufactured overseas by American-affiliated companies. U.S. manufacturers have moved production abroad in search of lower production costs or other economic advantages and are sending their product back to the American market. Figure 9 shows the percentage of U.S. imported products by affiliation of the foreign producer. The total value of such imports from foreign affiliates of U.S. parent companies rose from $39.3 billion in 1982 to $209.1 billion in 2004, but the percentage of total U.S. imports accounted for by these imports has been fairly constant at around 15%. In 1982, such imports accounted for 15.9% of total imports, while in 2004 they accounted for 14.2% of the total. These are products such as American branded computers assembled in China in a subsidiary affiliated with a U.S. company. The share of imports from foreign parent companies with affiliates in the United States has been rising somewhat--from 21.0% in 1982 to 21.7% in 2004. This reflects the growing foreign direct investment in the United States and includes imports such as transmissions from a Japanese automaker for use in its assembly plant located in the United States. Imports from unaffiliated foreigners account for about 60% of all imported goods. Their share has risen somewhat from 63.2% in 1982 to 64.1% in 2004. The latest currently available data is from 2004. fo noitailiffA yb sdooG fo stropmI .S.U fo serahS .9 erugiF 4002-8991 ,recudorP ngieroF .sisylanA cimonocE fo uaeruB .S.U morf ataD htiw SRC :ecruoS .8002 fo sa seires siht rof elbaliava tsetal si atad 4002 :etoN The International Monetary Fund has used its experience with currency and exchange rate crises to say that caution should be exercised when a nation's current account deficit reaches a level of 5% of gross domestic product. At this level, nations have difficulty borrowing to finance imports and the nation's exchange rate may come under severe downward pressure. The United States is a special case, since the dollar is a secondary medium of exchange (one can use dollars in many foreign countries without exchanging them for local currency) and dollars are used extensively as an official reserve currency by national banks. Still, the IMF has been warning that the size of the U.S. current account deficit could cause a large depreciation of the dollar and disrupt financial markets. Figure 10 shows the U.S. current account balance as a percent of nominal U.S. gross domestic product (GDP). It grew in magnitude from near zero in 1980 to 3.4% in 1987, dropped into negative 0.1% in 1991 and rose to 6.2% in 2006 (exceeding the 5% level considered to warrant caution by the International Monetary Fund). The current account balance-GDP ratio remained above the IMF caution level for 2007 at 5.3%. However, beginning in 2008 through 2010, it is predicted to decline to below the IMF caution level. tnecreP a sa ticifeD tnuoccA tnerruC .S.U ehT.01 erugiF )tsacerof( 0102-5891 ,tcudorP citsemoD ssorG fo .cnI ,thgisnI labolG yb stsaceroF .ecremmoC fo tnemtrapeD .S.U morf ataD :secruoS ¢ Some observers claim that the rising U.S. imports from China are merely displacing those from other East Asian nations. Labor intensive industries, such as apparel, shoes, and consumer electronics, that produce for export to the United States and other industrialized nations are simply moving to China from Southeast Asian nations, including South Korea, and Taiwan. The overall level of imports from Asia is not changing. Its composition is just shifting toward China. For specific industries, the shift in imports from traditional Asian exporting nations to China is clear. In woven apparel (HS 62), for example, in 1990, Hong Kong, South Korea, and Taiwan accounted for 33.4% of U.S. imports as compared to China with a 14.7% share. By 2006, China accounted for 35.3% of such imports, as compared to 4.9% for Hong Kong, South Korea, and Taiwan combined. In 2007, China's contribution to U.S. imports of woven apparel increased to 35.7%. Hong Kong, South Korea, and Taiwan collectively represented 3.4% of such imports, a decline from 2006.19 The decline in woven apparel imports from Hong Kong, South Korea, and Taiwan also may reflect their shift to production of high-technology goods. As these Southeast Asian countries continue to industrialize, woven apparel imports from less-developed countries, such as Indonesia, Bangladesh, and Vietnam, likely will continue to increase. In terms of overall imports, however, U.S. imports from Hong Kong, Taiwan, and South Korea rose from $50.6 billion (10.2% of total U.S. imports) in 1990 to $92.9 billion (4.7% of total) in 2007, while imports from China rose from $15.2 billion (3.3% of total) in 1990 to $321.4 billion (16.4% of total) in 2007.20 Clearly, the share of U.S. imports from Hong Kong, Taiwan, and South Korea has been falling, while the share of imports from China is rising. The value of U.S. imports from both, however, continues to rise, while the value of those from China is rising faster. The large U.S. trade deficit with China, moreover, is not just a transfer of the deficit from other Asian nations to China. The U.S. trade deficit with Hong Kong, Taiwan, and South Korea has gone from $17.9 billion (17.5% of the total U.S. deficit) in 1990 to $11.8 billion (1.5% of the total) in 2007. U.S. trade with Hong Kong actually went from a deficit in 1992 to a surplus in 1993, and has remained in surplus through 2007. The U.S. trade deficit with China, meanwhile, went from $10.4 billion (10.2% of the total U.S. trade deficit) in 1990 to $256.2 billion (32.2% of the total) in 2007. What actually is happening is quite complex. While the U.S. trade deficit with the world is declining, it continues to rise with China, Mexico and oil exporting countries. Table 12 illustrates this complexity. Negative percentage change numbers, noted in bold, indicate a shrinking U.S. merchandise trade deficit with that country or group. Positive percentage changes indicate growing deficits. htiW secnalaB edar esidnahcreM .S.U ni segnahC .21 elba T T 7002 dna 6002 ,spuorG dna seirtnuoC detceleS ghC % ghC % yrtnuoC 5002 6002 7002 5002/6002 6002/7002 latoT dlroW 774,767$- 403,718$- 384,497$- 5.6 8.2- anihC 545,102$- 985,232$- 702,652$- 4.51 2.01 -CEPO- 712,401$- 528,911$- 414,721$- 0.51 3.6 -72 UE- 321,321$- 612,711$- 761,701$- 8.4- 6.8- napaJ 915,28$- 865,88$- 067,28$- 3.7 6.6- ocixeM 447,94$- 472,46$- 226,47$- 2.92 1.61 adanaC 684,87$- 287,17$- 961,86$- 5.8- 0.5- ynamreG 765,05$- 367,74$- 315,44$- 6.5- 8.6- airegiN 816,22$- 036,52$- 299,92$- 3.31 0.71 aleuzeneV 755,72$- 131,82$- 907,92$- 1.2 6.5 aibarA iduaS 083,02$- 940,42$- 032,52$- 0.81 9.4 19 Calculations based on data from World Trade Atlas, using HS 62 for woven apparel. 20 The numbers are comparable for all Asian countries. ghC % ghC % yrtnuoC 5002 6002 7002 5002/6002 6002/7002 aisyalaM 422,32$- 989,32$- 849,02$- 3.3 7.21- aireglA 972,9$- 453,41$- 461,61$- 7.45 6.21 dnaliahT 336,21$- 023,41$- 003,41$- 4.31 1.0- ecnarF 234,11$- 228,21$- 041,41$- 2.21 3.01 gnoK gnoH 954,7$ 928,9$ 290,31$ 8.13 2.33 htuoS ,aeroK 610,61$- 263,31$- 819,21$- 6.61- 3.3- nawiaT 757,21$- 561,51$- 869,11$- 9.81 1.12- aissuR 443,11$- 721,51$- 949,11$- 4.33 0.12- sCIN 4 naisA 287,51$- 387,11$- 409,3$- 3.52- 9.66- .saltA edarT dlroW aiv susneC eht fo uaeruB ,ecremmoC fo tnemtrapeD .S.U :ecruoS CEPO fo srebmeM .evitisop si gnoK gnoH htiw ecnalab .S.U ehT .sisaB susneC a no atad edart esidnahcreM :setoN htuoS ,eropagniS ,gnoK gnoH :era )sCIN( seirtnuoC gnizilairtsudnI ylweN 4 naisA fo srebmeM .evoba ,ni detsil era .nawiaT dna aeroK Listed below are a list of resources available online for international trade statistics. The single most authoritative, comprehensive, and frequently-published trade data statistical source is the monthly "FT900". Its actual title is U.S. International Trade in Goods and Services. The FT-900 is issued monthly by the U.S. Census Bureau and the U.S. Bureau of Economic Analysis. It provides information on the U.S. trade in goods and services (balance, exports, and imports) in specific commodities and end-use categories and with selected countries. The report also provides information on trade in advanced technology, petroleum, and motor vehicle products. The report is available from the U.S. Bureau of Economic Analysis at http://www.bea.gov/newsreleases/rels.htm. Under "International" click on latest news release. Information on trade in specific commodities, with particular regions, or for different time periods also can be obtained from the U.S. International Trade Commission at http://dataweb.usitc.gov/. Historical and current U.S. exchange rate data are available from the Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/. Information on foreign country holdings of U.S. Treasury securities are available at http://www.treasury.gov/tic/. Dick K. Nanto J. Michael Donnelly Specialist in Industry and Trade Information Research Specialist dnanto@crs.loc.gov, 7-7754 mdonnelly@crs.loc.gov, 7-8722 Shayerah Ilias Analyst in International Trade and Finance silias@crs.loc.gov, 7-9253 ------------------------------------------------------------------------------ For other versions of this document, see http://wikileaks.org/wiki/CRS-RL33577