Order Code RL33577
U.S. International Trade:
Trends and Forecasts
Updated May 30, 2008
Dick K. Nanto
Specialist in Industry and Trade
Foreign Affairs, Defense, and Trade Division
Shayerah Ilias
Analyst in Industry and Trade
Foreign Affairs, Defense, and Trade Division
J. Michael Donnelly
Information Research Specialist
Knowledge Services Group

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U.S. International Trade: Trends and Forecasts
Summary
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 $815 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 $107
billion resulted in a deficit of $709 billion on goods and services for the year —
down $50 billion or 6.6% from the $759 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 $1,628 billion, while U.S. imports reached $2,337 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.

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Contents
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Implications of the Trade Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Types of Trade Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
U.S. Merchandise Trade Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Merchandise Trade Balance in Volume Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Current Account Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
U.S. Trade with Selected Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Advanced Technology, Autos, and Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Some Common Perceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Outsourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
List of Figures
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-May 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Figure 3. U.S. Merchandise Exports, Imports, Trade Balance, and
Real Effective Dollar Exchange Rate Index, 1982-2007 . . . . . . . . . . . . . . . . 9
Figure 4. Real U.S. Imports, Exports, and Trade Balance of Goods
(chained 2000 dollars), 1990-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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

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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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Figure 10. The U.S. Current Account Deficit as a Percent of
Gross Domestic Product, 1985-2010 (forecast) . . . . . . . . . . . . . . . . . . . . . . 26
List of Tables
Table 1. U.S. Exports, Imports, and Merchandise Trade Balances,
1982-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 2. U.S. Merchandise Trade in Volume Terms, 2001-2007 . . . . . . . . . . . . 12
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, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table 9. U.S. Trade in Advanced Technology Products . . . . . . . . . . . . . . . . . . . 22
Table 10. U.S. Trade in Motor Vehicles and Parts by
Selected Countries, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Table 11. U.S. Imports of Crude Oil by Selected Countries, 2007 . . . . . . . . . . . 24

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U.S. International Trade:
Trends and Forecasts
Most Recent Developments
Trade in goods. In 2007, the trade deficit in goods reached $815.4 billion
on a balance of payments (BoP) basis, down $22.9 billion from $838.3 billion in
2006. The 2007 deficit on merchandise trade with China was $256.3 billion (Census
basis), with the European Union (EU-27) was $107.4 billion, with Japan was $82.8
billion, with Canada was $64.7 billion, with Mexico was $74.3 billion, and the Asian
Newly Industrialized Countries (Hong Kong, South Korea, Singapore, and Taiwan)
was $3.8 billion. Imports of goods of $1,953.7 billion increased by $99.8 billion
(5.4%) over 2006. Increases in imports by sector were: crude oil up $20.7 billion,
capital goods except automotive up $26.6 billion, automotive vehicles and parts up
$2.3 billion, and consumer goods up $32.3 billion. Exports of goods of $1,162.7
billion rose by $126.1 billion (12%), particularly in industrial supplies, up $40
billion, capital goods except automotive up $32 billion, automotive vehicles and
parts up $14 billion, and consumer goods up $16 billion. Exports grew faster than
imports, which narrowed the trade deficit in goods.
Trade in services. In 2007, total annual imports of services of $372.3 billion
and exports of $479.2 billion yielded a surplus in U.S. services trade of $106.9
billion. The U.S. service industries, particularly, financial services, tourism,
shipping, and insurance, tend to compete well in international markets.
Trade in goods and services. In goods and services, total imports in
November 2007 of $206.1 billion were the highest in the year and in U.S. history.
That record has been exceeded by February 2008 imports of $212.8 billion. Goods
and services imports for March 2008 fell slightly to $206.7 billion. In December
2007, total exports of goods and services of $145.9 billion were the highest in the
year and U.S. history. That record has been exceeded by February 2008 exports of
$151.1 billion, which fell in March to $148.5 billion. The latest monthly deficit on
goods and services, for March 2008, was $58.2 billion, below the record high set in
August 2006 of $67.6 billion. For July through October 2007, the trade deficit for
goods and services remained below the $60 billion monthly level; it rose to $62.4
billion in November and fell to $57.9 in December. January and February 2008
goods and services balances of $59 and $61.7 billion exceeded U.S. balances for
those months in 2007. The March 2008 balance of $58.2 billion was less than the
equivalent figure for 2007.
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

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CRS-2
observers. At that level, other countries have experienced problems paying for
imports and maintaining the value of their currency.
Figure 1. Monthly U.S. Balances of Trade in Goods and Services,
2007 and 2008 (in Current Dollars)
$Billions
20
Services 2007
Services 2008
$
$
$
0
-20
-40
-60
$
$
$
Goods 2007
Goods 2008
-80
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Month
Source: CRS with Data from the U.S. Department of Commerce
Figure 1 shows U.S. trade in goods and services by month. In 2007, the
monthly surplus in services gradually rose from $7.6 billion to $10.1 billion. 2008
monthly services balance data average $10.4 billion. Total 2007 annual imports of
services of $372.3 billion and exports of $479.2 billion yielded a surplus in U.S.
services trade of $106.9 billion.1 In 2008, the monthly surplus in services trade has
been up slightly from that in 2007. For monthly trade in goods, the U.S. deficit for
January and February was higher, but in March dropped slightly below that for 2007.
This monthly deficit has been running at $65 billion to $70 billion per month.
The U.S. Deficit in International Trade
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.
1 Monthly trade data are available from the U.S. Bureau of Economic Analysis at
[http://www.bea.gov/bea/di/home/trade.htm].

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CRS-3
The United States in now running record deficits in its trade with other nations.
In 2007 the U.S. merchandise trade balance reached $791 billion on a Census basis
and $815 billion on a balance-of-payments basis (BoP). Still, the 2007 merchandise
trade deficit presents an 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 $107 billion in 2007
produced a deficit of $709 billion on goods and services for the year — nearly
identical to the $714 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 $1.628 trillion, while U.S. imports reached $2.237 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
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. Jones; CRS Report
RL32493, The North Korean Economy: Background and Policy Analysis, by Dick K. Nanto
and Emma Chanlett-Avery; or CRS Report RL33653, East Asian Regional Architecture:
New Economic and Security Arrangements and U.S. Policy, by Dick K. Nanto.

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CRS-4
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.
Savings Shortfalls and the Trade Deficit
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; 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.
Implications of the Trade Deficit
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,
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/].
5 For further information on trade deficits and the macroeconomy, see CRS Report
RL31032, The U.S. Trade Deficit: Causes, Consequences, and Cures, by Craig K. Elwell
and CRS 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.

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CRS-5
while decreasing from 6.2% of GDP in 2006 to 5.3% 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. The dollar’s decline was exacerbated when the
Federal Reserve lowered interest rates on September 18, 2007.
Figure 2. Month-End Trade-Weighted U.S. Dollar Against Broad,
Major Currencies, and Other Important Trading Partner Indices,
January 2000-May 2008
Index
160
Other Important Trading
Partners
140
120
100
80
Major Currencies
60
Broad
40
20
0
Jan -00 Jul -00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan -08
Month-Year
Source: Federal Reserve Bank of St. Louis, [http://www.federalreserve.gov/releases/h10/Summary/].
Notes: Broad Index (January 1997 = 100): Euro Area, Canada, Japan, Mexico, China, United
Kingdom, Taiwan, Korea, Singapore, Hong Kong, Malaysia, Brazil, Switzerland, Thailand,
Philippines, Australia, Indonesia, India, Israel, Saudi Arabia, Russia, Sweden, Argentina, Venezuela,
Chile and Colombia.
Major Currencies Index (January 1993 = 100): Euro Area, Canada, Japan, United Kingdom,
Switzerland, Australia, and Sweden.
Other Important Trade Partners Index (January 1997 = 100): Mexico, China, Taiwan, Korea,
Singapore, Hong Kong, Malaysia, Brazil, Thailand, Philippines, Indonesia, India, Israel, Saudi Arabia,
Russia, Argentina, Venezuela, Chile and Colombia.
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

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CRS-6
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 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
7 IMF, 2005 Article IV Consultation with the United States of America. Concluding
Statement of the IMF Mission. May 31, 2006.
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, see CRS Report RS22331,
Foreign Holdings of Federal Debt, by Justin Murray and Marc Labonte.

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CRS-7
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 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.
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 Martin A. Weiss, CRS Report
RL34366, Sovereign Wealth Funds: Background and Policy Issues for Congress, and
Michael F. Martin, CRS Report RL34337, China’s Sovereign Wealth Fund.
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.
14 For details, see CRS 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, see CRS Report
RL33536, China-U.S. Trade Issues, by Wayne M. Morrison.

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CRS-8
Types of Trade Data
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.
U.S. Merchandise Trade Balance
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 $3,114 billion, an 8% increase from $2,884
billion in 2006. Merchandise exports in 2007 totaled $1,149 billion, while imports
reached $1,965 billion (BoP basis). The U.S. merchandise trade deficit declined 3%
from $838 billion in 2006 to $815 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.

---

CRS-9
Figure 3. U.S. Merchandise Exports, Imports, Trade Balance, and
Real Effective Dollar Exchange Rate Index, 1982-2007
$ Billions
Exchange Rate Index
2200
300
2000
1800
Real Effective Dollar
1600
Exchange Rate (Right Scale)
Imports
200
1400
1200
, ,
, ,
, ,
1000
,
,
,
,
, ,
, ,
, , , ,
800
,
, , , , , ,
100
600
400
Exports
200
0
0
-200
Trade Balance
-400
-100
-600
-800
-1000
-200
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Year
Sources: U.S. Department of Commerce; IMF. Note: Exchange Rate, 1995= 100.
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 5.6%. 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 71% faster than imports just for the
deficit to remain constant.

---

CRS-10
Table 1. U.S. Exports, Imports, and Merchandise Trade
Balances, 1982-2007
(billions of U.S. dollars)
Census basis
Balance of payments basis
Exports
Imports
Trade
Exports
Imports
Trade
Year
(f.a.s.a)
(customs b)
Balance
(f.a.s.a)
(customs b)
Balance
1982
212.3
243.9
-31.6
211.2
247.6
-36.4
1983
201.7
261.7
-60.0
201.8
268.9
-67.1
1984
218.7
330.5
-111.8
219.9
332.4
-112.5
1985
212.6
336.4
-123.8
215.9
338.1
-122.2
1986
226.4
365.7
-139.3
223.3
368.4
-145.1
1987
253.9
406.3
-152.4
250.2
409.8
-159.6
1988
323.3
441.9
-118.6
320.2
447.2
-127.0
1989
362.9
473.4
-110.5
359.9
477.7
-117.8
1990
392.9
495.2
-102.3
387.4
498.4
-111.0
1991
421.8
487.1
-65.3
414.1
491.0
-76.9
1992
448.2
532.6
-84.4
439.6
536.5
-96.9
1993
464.8
580.5
-115.7
456.9
589.4
-132.5
1994
512.6
663.2
-150.6
502.9
668.7
-165.8
1995
584.7
743.5
-158.8
575.2
749.4
-174.2
1996
625.1
795.3
-170.2
612.1
803.1
-191.0
1997
689.2
869.7
-180.5
678.4
876.5
-198.1
1998
682.1
911.9
-229.8
670.4
917.1
-246.7
1999
695.8
1,024.6
-328.8
684.0
1,030.0
-346.0
2000
781.9
1,218.0
-436.1
772.0
1,224.4
-452.4
2001
730.9
1,142.3
-411.4
718.7
1,145.9
-427.2
2002
693.5
1,163.6
-470.1
681.8
1,164.7
-482.9
2003
724.8
1,257.1
-532.3
713.1
1,260.7
-547.6
2004
818.8
1,469.7
-650.9
807.5
1,477.1
-669.6
2005
906.0
1,673.5
-767.5
894.6
1,681.8
-787.2
2006
1,036.6
1,853.9
-817.3
1,023.1
1,861.4
-838.3
2007
1,163.2
1,953.3
-790.1
1,149.2
1,964.6
-815.4
Source: U.S. Department of Commerce, Bureau of Economic Analysis, U.S. International
Transactions Accounts Data.
Note: Goods on a Census basis are adjusted to a BoP basis to include changes in ownership that occur
without goods passing into or out of the customs territory of the United States, to eliminate
duplication, and to value transactions according to a standard definition. Export adjustments include
counting military sales as services not goods, adding private gift parcels, and foreign official gold sales
from U.S. private dealers. Import adjustments include adding in inland freight in Canada and foreign
official gold sales to U.S. private dealers, and subtracting imports by U.S. military agencies.
a. Exports are valued on an f.a.s. basis, which refers to the free alongside ship value at the port of
export and generally include inland freight, insurance, and other charges incurred in placing the
goods alongside the carrier at the port of exportation.
b. Imports are valued as reported by the U.S. Customs Service, known as Customs basis, and exclude
import duties, the cost of freight, insurance, and other charges incurred in bringing merchandise
to the United States.

---

CRS-11
Merchandise Trade Balance in Volume Terms
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.
Figure 4. Real U.S. Imports, Exports, and Trade Balance of Goods
(chained 2000 dollars), 1990-2007
$ Billions
2000
1750
U.S. Exports
+
+
+
1500
+
1250
U.S. Imports
+
+
+
+
+
1000
+
+
750
+
+
+
500
+
+
+
+
250
0
-250
-500
-750
Trade Balance
-1000
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Year
Source: CRS with data from U.S. Bureau of Economic Analysis.
As shown in Table 2 and 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).

---

CRS-12
Table 2. U.S. Merchandise Trade in Volume Terms, 2001-2007
(billions of chained 2000 dollars)
Export
Import
Real Trade
Year
Exports
Growth
Imports
Growth
Balance
2001
736.3
-6.1
1,204.1
-3.2
-467.8
2002
707.0
-4.0
1,248.2
3.7
-541.2
2003
719.8
1.8
1,309.3
4.9
-589.5
2004
784.4
9.0
1,457.0
11.3
-672.6
2005
843.5
7.5
1,553.6
6.6
-710.1
2006
927.4
9.9
1,646.9
6.0
-719.5
2007
1,000.8
7.9
1,673.5
1.6
-672.7
Source: CRS calculations from Bureau of Economic Analysis, National Income and Products
Accounts data, Table 4.2.6, [http://www.bea.gov/].
Figure 5. Annual Growth in U.S. Merchandise Exports and Imports,
1982-2007
Percent
30
Import
25
Growth
20
Export Growth
15
10
5
0
-5
-10
-15
82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Year
Source: Underlying data from U.S. Department of Commerce.

---

CRS-13
Current Account Balance
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 Figure 6.) 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.
Figure 6. U.S. Current Account and Merchandise Trade
Balances, 1982-2007
$Billions
200
0
-200
-400
Current Account Balance
-600
Merchandise Trade
Balance
-800
-1000
82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Year
Source: CRS with data from U.S. Bureau of Economic Analysis.
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.

---

CRS-14
Table 3. U.S. Current Account Balances: 1985-2007
(billions of U.S. dollars)
Merchandise
Investment
Net
Current
Calendar
Trade
Services
Income
Unilateral
Account
Year
Balance a
Balance b
Balance c
Transfers d
Balance e
1985
-122.2
0.3
25.7
-22.0
-118.2
1986
-145.1
6.5
15.5
-24.1
-147.2
1987
-159.6
7.9
14.3
-23.3
-160.7
1988
-127.0
12.4
18.7
-25.3
-121.2
1989
-117.7
24.6
19.8
-26.2
- 99.5
1990
-111.0
30.2
28.6
-26.7
-79.0
1991
-76.9
45.8
24.1
10.8
3.7
1992
-96.9
57.8
24.2
-33.1
-48.0
1993
-132.5
62.3
25.3
-37.1
-82.0
1994
-165.8
67.4
17.1
-36.8
-118.0
1995
-174.2
77.9
20.9
-34.1
-109.5
1996
-191.0
87.1
22.3
-38.6
-120.2
1997
-198.1
89.8
12.6
-45.2
-140.9
1998
-246.7
81.7
4.3
-53.2
-214.9
1999
-346.0
82.6
13.9
-50.6
-300.1
2000
-452.4
74.1
21.0
-58.8
-416.4
2001
-427.2
64.5
25.2
-51.9
-389.4
2002
-482.9
61.1
10.0
-64.0
-475.2
2003
-547.3
52.5
46.3
-71.2
-519.7
2004
-669.6
54.1
27.6
-81.6
-665.3
2005
-787.1
72.8
48.1
-88.5
-754.8
2006
-838.3
79.7
36.6
-89.6
-811.5
2007
-815.4
106.9
74.3
-104.4
-738.6
Source: U.S. Bureau of Economic Analysis, U.S. International Transactions. On the Internet at
[http://www.bea.gov/bea/international/bp_web/simple.cfm?anon=68365&table_id=1&area_id=3].
a. On a BoP basis.
b. Includes travel, transportation, fees and royalties, insurance payments, other government and
private services, and investment income.
c. Income receipts on U.S. assets abroad minus income payments on foreign assets in the United
States.
d. International transfers of funds, such as private gifts, pension payments, and government grants for
which there is no quid pro quo.
e. The trade balance plus the service balance plus investment income balance plus net unilateral
transfers, although conceptually equal to the current account balance, may differ slightly as a
result of rounding.
Because the merchandise trade balance comprises the greater part of the current
account, the two tend to track each other. Unlike the merchandise trade balance,
however, the services account registered a $79.7 billion surplus in 2006 and $106.9
billion surplus in 2007. Since Americans are 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

---

CRS-15
2007. Unilateral transfers have now reached more than triple the level of the late
1980s.
Forecasts
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
$826.1 billion on a balance of payments basis before beginning to rise in 2009 (see
Table 4 and Figure 7). The U.S. current account deficit likewise declined from the
peak of $811.5 billion in 2006 to $749.6 billion in 2007. After additional dips in
2008 and 2009, the current account deficit is forecasted to increase again in 2010.
Table 4. U.S. Merchandise and Current Account Trade,
2003 to 2010 (Forecast)
(billions of U.S. dollars)
2003
2004
2005
2006
2007
2008
2009
2010
Merchandise Trade
Exports
Actual
713.4
807.5
894.6 1,023.1 1,149.3
—
—
—
Forecasted
—
—
—
—
— 1,312.6 1,435.2 1,553.9
Imports
Actual
1260.7 1472.9 1,681.8 1,861.4 1,964.9
—
—
—
Forecasted
—
—
—
—
— 2,138.7 2,163.8 2,292.1
Trade Balance
Actual
-547.3
-665.4
-787.1
-838.3 -815.6
—
—
—
Forecasted
—
—
—
—
— -826.1
-728.5
-738.2
Services Trade Balance
Actual
52.5
54.1
72.8
79.7
103.9
—
—
—
Forecasted
—
—
—
—
—
146.6
172.3
192.9
Current Account Balance
Actual
-519.7
-665.3 -754.8 -811.5 -749.6
—
—
—
Forecasted
—
—
—
—
— -696.8
-607.0
-656.4
Sources: U.S. Bureau of Economic Analysis and Global Insight (BoP basis).

---

CRS-16
Figure 7. U.S. Merchandise Trade and Current Account Deficits,
1997-2010 (forecast, in current dollars)
$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
Sources: U.S. Bureau of Economic Analysis and Global Insight (BoP basis).
U.S. Trade with Selected Nations
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.

---

CRS-17
Figure 8. U.S. Merchandise Trade Balances With Selected Nations,
2007
Country
China
-256
Japan
-83
Mexico
-74
Canada
-64
Germany
-45
Nigeria
-30
Venezuela
-30
Saudi Arabia
-25
Malaysia
Deficit
-21
Ireland
-21
Italy
-21
Thailand
-14
France
-14
South Korea
-13
Russia
-12
Taiwan
-12
Sweden
-9
United Kingdom
-7
India
-6
Singapore
8
Belgium
10
Australia
Surplus
11
Hong Kong
13
Netherlands
15
-300
-250
-200
-150
-100
-50
0
50
$ Billions
Source: CRS with data from the U.S. Department of Commerce (Census basis).
Most of the U.S. trade deficit can be accounted for by trade with China, Japan,
Canada, Mexico, and Germany. Trade with the oil exporting countries, particularly
Venezuela, Nigeria, and Saudi Arabia, also is in deficit. U.S. trade surpluses occur
in trade with the Netherlands, Australia, Hong Kong, 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 over 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
16 For details and policy discussion, see CRS Report RL31403, China’s Trade with the
United States and the World, by Thomas Lum and Dick K. Nanto, or CRS Report RL33536,
China-U.S. Trade Issues, by Wayne M. Morrison.

---

CRS-18
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 goods that contain Hong Kong components or
involve final packaging in Hong Kong. The United States also counts Hong Kong
as the destination of U.S. products sent there, even those that are then reexported to
China. However, the PRC counts many of such reexported goods as U.S. exports to
China. So by U.S. figures, U.S. exports to China tend to be understated, while by
Chinese figures, Chinese exports to the U.S. tend to be understated. The net result
is that China’s reported trade surplus with the United States at $163 billion in 2007
is a little over 60% of the reported U.S. deficit with China of $256 billion.
Table 5. U.S. Merchandise Trade Balances with Selected
Nations and Groups, 2002-2007
(millions of U.S. dollars, Census basis)
Country
2002
2003
2004
2005
2006
2007
Total
-468,263
-532,350
-650,930
-767,477
-817,304
-790,328
North America
-853,110
-92,319
-111,547
-128,230
-136,056
-138,464
Canada
-48,165
-51,671
-66,480
-78,486
-71,782
-64,206
Mexico
-37,146
-40,648
-45,067
-49,744
-64,274
-74,258
Europe
-93,355
-105,603
-119,907
-132,269
-123,016
-121,348
European Union 27
-86,377
-98,521
-109,999
-123,123
-117,216
-107,389
United Kingdom
-7,540
-8,967
-10,274
-12,445
-8,103
-6,597
Germany
-35,876
-39,281
-45,850
-50,567
-47,763
-44,713
France
-9,224
-12,166
-10,342
-11,432
-12,822
-14,182
Italy
-14,164
-14,854
-17,413
-19,485
-20,109
-20,901
Netherlands
8,462
9,742
11,839
11,623
13,787
14,566
Russia
-4,473
-6,171
-8,930
-11,344
-15,127
-11,995
Pacific Rim
-310,170
331,869
405,298
-469,223
-513,662
-366,660
Countries
Japan
-69,979
-66,032
-75,562
-82,519
-88,568
-82,799
China
-103,065
-124,068
-161,938
-201,545
-232,589
-256,270
Newly Industrialized
-22,080
-21,217
-21,883
-15,782
-11,783
-3,827
Countries (NICS)
Singapore
1,416
1,422
4,238
5,532
6,916
7,889
Hong Kong
3,266
4,669
6,513
7,459
9,829
13,090
Taiwan
-13,766
-14,152
-12,879
-12,757
-15,165
-11,943
Republic of Korea
-12,996
-13,157
-19,755
-16,016
-13,362
-12,863
South/Central
-17,952
-26,883
-37,183
-50,460
-44,706
-27,244
American Countries
Argentina
-1,602
-732
-357
-462
797
1,360
Brazil
-3,405
-6,699
-7,263
-9,064
-7,136
-1,008
Colombia
-2,022
-2,629
-2,751
-3,387
-2,557
-881
OPEC
-34,433
-51,064
-71,843
-92,867
-105,289
-124,183
Venezuela
-10,664
-14,305
-20,153
-27,557
-28,131
-29,670
Indonesia -7,087
-6,999
-8,139
-8,960
-10,346
-10,070
Saudi Arabia
-8,369
-13,473
-15,702
-20,380
-24,049
-25,227
Nigeria
-4,888
-9,377
-14,694
-22,618
-25,630
-29,984
Sources: United States Census Bureau, Foreign Trade Statistics. For other countries and further
detail, see U.S. International Trade in Goods and Services Annual Revision for 2006, FT 900 (07-04),
released June 8, 2007.
Note: Trade Balance equals Total Exports (f.a.s. value) minus General Imports (Customs value).

---

CRS-19
Table 6 lists the U.S. top deficit trading partners in merchandise trade, on a
Census basis. In 2000, China overtook Japan as the top U.S. deficit trading partner.
After, China, the next highest deficit trading partners are Japan, Mexico, Canada,
Germany, and Nigeria.
Table 6. Top U.S. Merchandise Deficit Trading Partners, 2007
(millions of U.S. dollars)
Country
Balance
U.S. Exports
U.S. Imports
China
-256,270
65,238
321,508
Japan
-82,799
62,665
145,464
Mexico
-74,258
136,541
210,799
Canada
-64,206
248,905
313,111
Germany
-44,713
49,652
94,365
Nigeria
-29,984
2,787
32,771
Venezuela
-29,698
10,199
39,897
Saudi Arabia
-25,227
10,399
35,626
Ireland
-21,336
9,011
30,347
Malaysia
-21,110
11,680
32,790
Italy
-20,901
14,141
35,042
Algeria
-16,163
1,653
17,816
Thailand
-14,308
8,445
22,753
France
-14,182
27,407
41,589
Korea
-12,863
34,703
47,566
Russia
-11,995
7,365
19,360
Taiwan
-11,943
26,359
38,302
Angola
-11,228
1,280
12,508
Indonesia
-10,069
4,235
14,304
Iraq
-9,832
1,575
11,407
Vietnam
-8,730
1,903
10,633
Sweden
-8,552
4,494
13,046
Israel
-7,793
13,019
20,812
Austria
-7,498
3,172
10,670
Trinidad and Tobago
-7,014
1,780
8,794
Source: U.S. Department of Commerce. U.S. International Trade in Goods and Services, FT 900
(07-04).
Note: Data are on a Census basis. Exports are valued f.a.s.; imports are valued Customs.
Table 7 lists the United States’ top trading partners ranked by trade turnover,
defined as exports plus imports. As shown in Table 7, in 2007, as in 2006, Canada
was America’s largest total merchandise trading partner. Canada was followed by
China, Mexico, Japan, Germany, the United Kingdom, Korea, Taiwan and France.
Malaysia dropped from number 10 in total U.S. trade in 2006 to number 14 in 2007.
Canada was the largest supplier of U.S. imports in 2006 and before, but in 2007
China surpassed Canada. By far, Canada is the top purchaser of U.S. exports with
Mexico second. In 2007 China passed Japan to become third. Japan is now our
fourth-ranked export market.

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CRS-20
Table 7. Top U.S. Trading Partners Ranked by Total
Merchandise Trade in 2007
(millions of U.S. dollars)
Rank
Country
Total Trade
Balance
U.S. Exports
U.S. Imports
1
Canada
$561,548.1
-$64,673.7
$248,437.2
$313,110.9
2
China
$386,746.1
-$256,269.5
$65,238.3
$321,507.8
3
Mexico
$347,340.3
-$74,257.7
$136,541.3
$210,799.0
4
Japan
$208,128.6
-$82,798.6
$62,665.0
$145,463.6
5
Germany
$144,016.5
-$44,712.5
$49,652.0
$94,364.5
6
United Kingdom
$107,189.1
-$6,596.7
$50,296.2
$56,892.9
7
Korea
$80,007.9
-$15,124.7
$32,441.6
$47,566.3
8
France
$68,996.1
-$14,181.9
$27,407.1
$41,589.0
9
Taiwan
$64,660.4
-$11,943.4
$26,358.5
$38,301.9
10
Brazil
$50,264.4
-$1,007.6
$24,628.4
$25,636.0
11
Venezuela
$50,096.0
-$29,697.4
$10,199.3
$39,896.7
12
Italy
$49,183.1
-$20,900.5
$14,141.3
$35,041.8
13
Saudi Arabia
$46,025.6
-$25,227.2
$10,399.2
$35,626.4
14
Malaysia
$44,469.8
-$21,110.2
$11,679.8
$32,790.0
15
India
$41,616.9
-$6,431.9
$17,592.5
$24,024.4
16
Ireland
$39,657.2
-$21,635.8
$9,010.7
$30,646.5
17
Thailand
$31,197.8
-$14,308.0
$8,444.9
$22,752.9
18
Russia
$26,725.5
-$11,994.9
$7,365.3
$19,360.2
19
Algeria
$19,468.6
-$16,163.6
$1,652.5
$17,816.1
20
Indonesia
$18,538.8
-$10,069.8
$4,234.5
$14,304.3
21
Colombia
$17,999.7
-$880.5
$8,559.6
$9,440.1
22
Sweden
$17,540.3
-$8,552.3
$4,494.0
$13,046.3
23
Chile
$17,313.8
-$692.2
$8,310.8
$9,003.0
24
South Africa
$14,592.4
-$3,556.6
$5,517.9
$9,074.5
25
Austria
$13,841.8
-$7,497.8
$3,172.0
$10,669.8
26
Norway
$10,371.6
-$4,266.6
$3,052.5
$7,319.1
Source: U.S. Department of Commerce. U.S. International Trade in Goods and Services, December
2007 and February 2008. FT 900 (07-12), and (08-02).
Notes: Total trade = imports + exports. Data are on a Census basis. Exports are valued f.a.s.; imports
are valued Customs.
Table 8 lists trade balances on goods, services, and income, net unilateral
transfers and current account balances for selected U.S. trading partners. While trade
in services, flows of income from investments, and remittances home by foreign
workers are considerably smaller than merchandise flows, as the economy has
become more globalized and service-oriented, these components of the current
account have become more important. In many cases, the bilateral current account
balances are quite different from bilateral balances on merchandise trade only.

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CRS-21
Table 8. U.S. Current Account Balances With
Selected U.S. Trading Partners, 2006
(millions of U.S. dollars)
Merchandise
Investment
Net
Current
Trade
Services
Income
Unilateral
Account
Country
Balance a
Balance b
Balance c
Transfers d
Balance e
All Countries
-838.3
79.7
36.6
-89.6
-811.5
Mexico
-67.3
7.5
0.2
-11.1
-70.7
Canada
-75.1
15.5
18.5
0.4
-40.7
Asia and Pacific
-409.8
32.1
-38.9
-15.1
-431.7
China
-233.1
3.6
-26.7
-2.1
-258.2
Japan
-91.0
16.5
-35.7
1.6
-108.5
S. Korea
-14.4
4.2
-0.1
-0.6
-10.9
European Union
-120.2
14.3
1.7
-1.9
-106.2
Germany
-48.5
-7.0
-2.4
0
-57.9
United Kingdom
-9.0
9.8
-15.5
3.6
-11.1
Latin America
-112.6
12.2
18.9
-29.1
-110.6
Middle East
-36.1
-0.2
-2.5
-12.7
-51.5
Source: U.S. Bureau of Economic Analysis, International Transactions Account Data.
a. On a BoP basis.
b. Includes travel, transportation, fees and royalties, insurance payments, other government and
private services, and investment income.
c. Income receipts on U.S. assets abroad minus income payments on foreign assets in the United
States.
d. International transfers of funds, such as private gifts, pension payments, and government grants for
which there is no quid pro quo.
e. The trade balance plus the service balance plus investment income balance plus net unilateral
transfers, although equal to the current account balance, may differ as a result of rounding.
Country data for current account are not yet available for 2007. For 2006 data,
summarized above, since Japan has invested considerable amounts in securities,
equities, and in factories in the United States, the United States ran a deficit of $35.7
billion in investment income with that country in 2006. This more than offset the
surplus of $16.5 billion in trade in services with Japan. As a result, the current
account deficit with Japan of $108.5 billion in 2006 exceeded the bilateral
merchandise trade deficit of $91 billion. Likewise with China; the U.S. deficit on
investment income of $26.7 billion far overshadowed the U.S. surplus of $3.6 billion
in services.
In 2006, a different situation existed with the European Union and Canada. In
2006, the United States earned a $1.7 billion surplus in investment income with the
EU while the U.S. surplus in services came to $14.3 billion. These two flows offset
a merchandise deficit of $120.2 billion to produce a U.S. current account deficit of
$106.2. From Canada the United States received $18.5 billion in investment income
plus a surplus in services trade of $15.5 billion. Hence, the current account deficit
with Canada at $40.7 billion was lower than the $75.1 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

---

CRS-22
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 2006, the overall U.S. balance on investment
income registered a surplus of $36.6 billion. Imbalances in investment income with
certain countries have been growing and could become a problem in the future.
Advanced Technology, Autos, and Oil
Table 9 shows U.S. trade in advanced technology products. This includes about
500 commodity 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 to -$43.6. In 2006 this deficit
dropped to -$38.1 billion, but in 2007 resumed its former path of growing ten billion
dollars per year, to -$53.5. This 2007 deficit represents 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.
Table 9. U.S. Trade in Advanced Technology Products
(billions of U.S. dollars)
Year
U.S. Exports
U.S. Imports
Trade Balance
1990
93.4
59.3
34.1
1995
138.4
124.8
13.6
1996
154.9
130.4
24.5
1997
179.5
147.3
32.2
1998
186.4
156.8
29.6
1999
200.3
181.2
19.1
2000
227.4
222.1
5.3
2001
200.1
195.3
4.8
2002
178.6
195.2
-16.6
2003
180.2
207.0
-26.8
2004
201.4
238.3
-36.9
2005
216.1
259.7
-43.6
2006
252.7
290.8
-38.1
2007
273.4
326.9
-53.5
Source: U.S. Bureau of the Census. U.S. International Trade in Goods and Services. FT-900, issued
monthly.
Notes: Includes about 500 of some 22,000 commodity classification codes that meet the following
criteria: (1) contains products whose technology is from a recognized high technology field (e.g.,
biotechnology), (2) represent leading edge technology in that field, and (3) constitute a significant part
of all items covered in the selected classification code. Data are on a BoP basis.

---

CRS-23
Table 10 provides data on trade in passenger cars with major automobile
producing nations for 2007. This does not include foreign cars assembled in the
United States. The United States incurs the largest deficits in this trade with Japan,
Mexico, Germany, South Korea, and Canada. The U.S. trade balance in motor
vehicles improved from a $144,990 million deficit in 2006 to a $121,484 million
deficit in 2007, a 16% change.17
Table 10. U.S. Trade in Motor Vehicles and Parts by
Selected Countries, 2007
(millions of U.S. dollars)
Trading Partner
U.S. Exports
U.S. Imports
Trade Balance
Total World
124,306
245,790
-121,484
Japan
2,314
55,211
-52,897
Mexico
19,192
49,940
-30,748
Germany
8,881
24,654
-15,773
Korea
1,014
11,296
-10,282
Canada
60,425
65,911
-5,486
United Kingdom
2,507
5,450
-2,943
Source: U.S. Bureau of the Census, U.S. International Trade in Goods and Services, FT-900, issued
monthly.
Table 11 shows imports of crude petroleum by major country source. In 2007,
the United States imported $246 billion in crude oil or 13% of all imports. Roughly
half comes from the Organization of the Petroleum Exporting Countries (OPEC) with
Saudi Arabia, Venezuela, and Nigeria the predominant suppliers. Imports from Iraq
are recovering with $11 billion worth in 2007. Over 40% of U.S. petroleum imports
come from non-OPEC sources, primarily Canada and Mexico.18
17 For information on the automobile industry, see CRS Report RL32883, U.S. Automotive
Industry: Recent History and Issues, by Stephen Cooney and Brent D. Yacobucci.
18 For policy discussion, see CRS Report RS22204, U.S. Trade Deficit and the Impact of
Rising Oil Prices, by James K. Jackson.

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CRS-24
Table 11. U.S. Imports of Crude Oil by Selected Countries, 2007
(quantity and customs value)
Customs Value
Quantity
Country
($ million)
(thousand barrels)
Total World
237,221
3,690,925
OPEC Total
135,219
2,026,936
Saudi Arabia
33,833
515,837
Venezuela
30,015
482,799
Nigeria
30,098
406,585
Algeria
11,506
163,033
Angola
12,130
182,999
Iraq
10,874
171,628
Kuwait
3,754
61,725
Libya
2,406
32,904
Indonesia
370
6,119
United Arab Emirates
233
3,307
Qatar
0
0
Iran
0
0
Non-OPEC Total
102,002
1,663,989
Canada
38,028
656,720
Mexico
30,267
504,381
Ecuador
4,360
71,611
Brazil
3,761
59,719
Colombia
3,548
51,822
Russia
2,505
36,833
Congo
2,895
40,974
United Kingdom
2,543
36,464
Chad
2,107
35,858
Gabon
2,099
30,127
Other Non-OPEC
9,889
139,480
Sources: U.S. Census Bureau, U.S. International Trade in Goods and
Services, FT-900, issued monthly, and World Trade Atlas, using Harmonized
Schedule (HS) 270900 for crude oil.
Some Common Perceptions
This section of the report addresses a few common perceptions about trade that
can be validated by data.

Outsourcing
A common perception is that an increasing amount of U.S. imports are actually
goods manufactured overseas by U.S. 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.

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CRS-25
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.
Figure 9. Shares of U.S. Imports of Goods by Affiliation of
Foreign Producer, 1998-2004
Percent
100%
From Foreign Parents of U.S. Affiliates
80%
From Foreign Affiliates of U.S. Parents
60%
40%
From Unaffiliated Foreigners
20%
0%
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Year
Source: CRS with Data from U.S. Bureau of Economic Analysis.
Note: 2004 data is latest available for this series as of 2008.

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CRS-26
Is the Trade Deficit at a Dangerous Level?
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 5.4%. However, beginning in 2008 through 2010, it is predicted to decline to
below the IMF caution level.
Figure 10. The U.S. Current Account Deficit as a Percent
of Gross Domestic Product, 1985-2010 (forecast)
Percent
7
Actual
Forecast
6.1 6.2
6
5.7
5.3
4.9
5
4.7
4.5
IMF Caution Level
4.2
4.1
4.2
3.8
4
3.3 3.4
3.2
2.8
3
2.4
2.4
1.8
2
1.7 1.5 1.5 1.5
1.3
1.2
0.8
1
0
-0.1
-1
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Year
Sources: Data from U.S. Department of Commerce. Forecasts by Global Insight, Inc.

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CRS-27
Is Trade with China Merely Replacing
That with Southeast Asia?
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 31.3% 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 3.5% of such imports, a
slight 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 (4.8% of total) in 2007, while imports from China rose from $15.2
billion (3.3% of total) in 1990 to $321.5 billion (16.5% 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 $11.7 billion (1.5% of the total) in 2007. U.S. trade with Hong
Kong actually went from a deficit to a surplus in 2006 and remained a surplus in
2007. The U.S. trade deficit with China, meanwhile, went from $41.1 billion (10.2%
of the total U.S. trade deficit) in 1990 to $256.3 billion (32.4% of the total) in 2007.
What actually is happening is that the U.S. trade deficit is rising with most regions
of the world, particularly with Asia, including China, and it also is rising with
Canada and Mexico, the European Union, and with oil exporting countries.
19 Calculations based on data from World Trade Atlas, using HS 62 for woven apparel.
20 The numbers are comparable for all Asian countries.

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CRS-28
International Trade Statistics Web Resources
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/].

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