Has the Trade Deficit Finally Bottomed Out?

Posted by: Michael Mandel on January 10

This morning’s foreign trade release brings a glimmer of good news on the trade front. Forget about the headline numbers for a bit, since they tend to bounce up and down along with oil prices. Instead, let’s look at the non-oil trade deficit.

What we see is that the non-oil trade deficit, totalled over the past 12 months, actually shrunk in November. Is that unusual? Very. Since early 2002 the 12-month non-oil trade deficit has expanded in 55 out of 57 months.

Now, this is not the end of the story, of course. But it does suggest that the U.S. competitive position, at least measured by the conventional statistics, may be about to stop deteriorating. (I’ll get to the nonconventional statistics in another post).

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Reader Comments

Ken Jarboe

January 10, 2007 10:28 AM

Mike -- thanks for pointing this out. You are right that we should focus on the non-oil deficit. My own analysis shows our surplus in intangibles to be increasing ever so slightly. These two pieces of information are relative good news. I say relatively because it simply means that we are simply not digging a hole as fast. When the non-oil deficit actually begins a faster turn around, then I will celebrate.

Brandon W

January 10, 2007 01:23 PM

It is way to early to tell anything. Even looking at that graph there are points that, in their moment, appeared to be a leveling off (see Mar/Apr) only to turn back to a rapid increase in the gap. Ken makes a good point when he says it "means that we are simply not digging a hole as fast." May I point out that the same goes for the recently ballyhooed "deficit reductions" in government spending.

happyjuggler0

January 17, 2007 12:57 AM

Historically the US trade deficit "improves" just before a recession. Which ought to give pause to anyone who thinks trade surplusses are a good thing.

allan bateman

February 13, 2007 11:56 AM

For decades the US trade deficits, current account deficits, and government spending deficits, have had very little effect on the US dollars standing in the world, until recently. Why now? The world has changed, China is now the big boy on the block. Before this there was the cold war with Russia, but Russia had no real economic effect on the world, but China does. In fact most of the US GDP is made up of reselling Chinese manufactured goods, while only 8 1/2% of the US GDP is exports. This lack of exports doesn't allow the US economy to take advantage of a weakening US dollar, that would of brought more jobs to America's work force. So why is the US dollar as strong as it is? Compare Canada's dollar the the US buck. Canada has never had a trade deficit( my memory), never has a current account deficit, and rarely has it's governmet spending in negative ground, so why is the Canadian dollar only 85 cents US? I guess couple reason's . US dollar is still A world currency, many products still trade in US dollars. CDN is a very thinnly traded currency. The US ability to BS, or in some cases threaten the world is still high. The demise of the US dollar is coming though, as many countries tire of bankrolling US consumers and the US government spending. The US has simply become a welfare state, asking countries with large merchandise trade surpluses with the US, to buy US government debt. (10 year treasury notes). As China grows to become the worlds dominate player, along with the growth of the Euro, as the western worlds dominate currency, the worlds need for the US dollar will utimately decline. Maybe the US dollar will even collapse. US interest rates will skyrocket and US stocks will fall. After all who will buy an equity in a depreciating currency..a future thought.

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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