Updated December 16, 2019
The U.S. Trade Deficit: An Overview
The trade deficit is the numerical difference between a
country’s exports and imports of goods and services. The
United States has experienced annual trade deficits during
most of the post-WWII period. Some observers argue that
the trade deficit costs U.S. jobs, is unsustainable, or reflects
unfair trade practices by foreign competitors. Most
economists contend this mischaracterizes the nature of the
trade deficit and the role of trade in the economy. In
general, most economists conclude the trade deficit stems
largely from U.S. macroeconomic policies and an
imbalance between saving and investment in the economy.
Economists also conclude that trade creates both economic
benefits and costs, but that the long-run net effect on the
economy as a whole is positive. At the same time, some
workers and firms may experience a disproportionate share
of short-term adjustment costs.
What is the Trade Deficit?
The U.S. merchandise trade deficit is an accounting of the
net balance of exports and imports of goods, one
component of the overall balance of payments. A broader
measure of U.S. global economic engagement, the current
account, includes trade in goods, services and some income
flows. In 2018, U.S. merchandise exports were $1.67
trillion; imports were $2.56 trillion; and the merchandise
trade deficit was $887 billion on a balance of payments
basis, with a services surplus of $260 billion. Through
October 2019, merchandise goods exports were recorded at
$1.4 trillion, merchandise imports were 2.1 trillion for a
goods deficit of $727 billion, slightly below the $732
billion recorded for the same period in 2018. Services
exports were $703 billion, while services imports were
$496, for a surplus of $207 billion, also slightly below the
surplus of $219 billion recorded in 2018. Exports account
for about 12% of U.S. GDP; imports account for about
15%. As indicated in Figure 1, the United States annually
experiences a deficit in goods trade, but a surplus in
Figure 1. U.S. Goods and Services Trade, 1999-2018
By standard convention, each transaction in the balance of
payments has a corresponding and offsetting transaction: a
surplus or deficit in the merchandise trade account is offset
by a transaction in the financial accounts. In these accounts,
exports are recorded as a positive amount, because they
represent a credit, while imports are recorded as a negative
amount, because they represent a debt that must be repaid.
What is the Source of the Trade Deficit?
Given the composition of the U.S. economy, most
economists argue the U.S. trade deficit is the product of
U.S. macroeconomic policy. Currently, the demand for
capital in the U.S. economy outstrips the amount of gross
savings supplied by households, firms, and the government
sector (a savings-investment imbalance), which pushes up
domestic interest rates. With floating exchange rates and
liberalized capital flows, capital inflows bridge the gap
between domestic sources of capital and demand, allowing
the country to consume more than it produces, represented
by the trade deficit. Foreign investors also seek dollardenominated assets as safe-haven assets during times of
economic stress. The dollar, as a de facto global reserve
currency, facilitates the trade deficit by broadening the
availability of dollars and dollar-denominate assets.
Without this unique role, the United States would have
faced major challenges sustaining trade deficits without
making domestic economic adjustments.
Foreign demand for dollars and dollar-denominated assets
places upward pressure on the exchange value of the dollar,
which raises the cost of U.S. exports and reduces the cost of
imports. As a result, the trade deficit is the offsetting
amount of the capital inflows. Economists argue that
attempting to reduce the trade deficit without addressing the
underlying macroeconomic imbalances could affect the
economy negatively in various ways, including but not
limited to, reducing the annual rate of growth of the
economy and the rate of productivity. Furthermore, most
economists argue that domestic wage rates, the rate of
unemployment, and the overall rate of growth in the
economy are the product of the macroeconomic policy
environment rather than the product of trade generally or
the trade deficit.
Trade Agreements and the Trade Deficit
Source: Created by CRS with data from Bureau of the Census.
Some analysts argue that free trade agreements (FTAs)
have contributed to rising trade deficits with some trade
partners. The Trump Administration has indicated that its
first priority in trade relations is lowering or eliminating
bilateral trade deficits. In 2016, the United States ran a
merchandise trade deficit of $71.0 billion with its 20 FTA
partner countries, but a services surplus of around $80.0
billion, or a combined goods and services surplus of about
$9.0 billion. Most economists contend that FTAs are likely
to affect the composition of trade among trade partners,
The U.S. Trade Deficit: An Overview
primarily through trade diversion, but have little impact on
the overall size of the trade deficit, given the
macroeconomic origins of the trade deficit and other
factors. Bilateral trade balances can provide a quick
snapshot of the U.S. trade relationship with a particular
country, but most economists argue that such balances are
incomplete measures of the comprehensive nature of the
scope of economic engagement between the United States
and its trading partners.
Trade agreements generally aim to remove trade barriers
and determine the rules by which nations conduct trade.
They provide incentives to consumers in the form of lower
tariff rates and to firms in the form of lower trade barriers,
but behavioral characteristics of consumers and firms
determine how those incentives affect bilateral trade. Also,
bilateral trade balances are influenced by various and
diverse economic policies and activities among trading
partners, including: the overall level of economic
development, the abundance of raw materials, relative rates
of economic growth, formal and informal barriers, and rates
of technological change. Also, the growth of cross-border
trade through complex value chains and intra-firm trade
challenge traditional concepts of trade and trade balances.
The U.S. International Trade Commission estimated that in
2012 U.S. bilateral and regional trade agreements increased
bilateral trade with partner countries by 26.3%, U.S.
aggregate trade by about 3%, and U.S. real GDP and U.S.
employment by less than 1%.
A broad range of events, such as the 2008-2009 financial
crisis, can affect national economies and trade balances
overall to a greater degree than even the most robust trade
agreement. As a result, most economists question the
usefulness of using bilateral trade balances as indicators of
trade relations, the effectiveness of a trade agreement, or
the costs and benefits of a trade agreement. With or without
a formal trade agreement, trade with specific countries may
have a concentrated impact on certain sectors of the
economy and entail certain adjustment costs, including
changes in employment. These potential costs can be highly
concentrated, with some workers, firms, and communities
affected disproportionately. In a dynamic economy such as
the United States, adjustments are constantly taking place
and can occur even in the complete absence of trade.
Trade Deficit and Unemployment
Some analysts argue that the trade deficit equates to a net
loss of jobs in the economy by implying that domestic
production could be substituted for imports, which
potentially could boost both production and jobs in the U.S.
economy. As the U.S. economy approaches full
employment, however, such an increase likely would lead
to rising prices. Most economists argue that equating a trade
deficit, whether on a bilateral basis or overall, with
unemployment or job losses is questionable given the
macroeconomic origin of the trade deficit and the relatively
limited role that trade plays in the overall U.S. economy.
The International Trade Administration (ITA) estimated
that in 2016, U.S. exports of goods and services supported
11.7 million U.S. jobs, or 8% of the U.S. workforce.
In some cases, various groups have used the ITA estimates
on jobs supported by exports to argue that if a certain
number of jobs were supported by $1 billion of exports,
then that same number could be used to argue that a certain
number of jobs would be “lost” by $1 billion of imports,
represented by the trade deficit. As a result, any net increase
in imports with FTA countries would necessarily result in a
loss of employment for the economy.
While some imports and exports are substitutable, other
imports represent items that are not available or are more
costly to produce domestically. Also, demands on labor and
capital markets vary substantially between export and
import sectors. While some job losses associated with
imports can be highly concentrated, imports also support a
broad range of widely-dispersed service-sector jobs,
including transportation, sales, finance, marketing,
insurance, legal, and accounting.
Some observers argue that trade deficits tend to reduce the
number of jobs and increase the unemployment rate for the
economy as a whole. International competition through
trade is one of a number of factors that affect the overall
composition of employment in the economy and may result
in job gains and losses. In general, the unemployment rate
and the trade deficit are related indirectly through the rate
of growth of the economy. In 2009, in the midst of the
global financial crisis, the U.S. rate of economic growth fell
to a negative 3.0%, the rate of unemployment rose to 9.9%,
and the U.S. merchandise trade deficit declined to -$510
billion as global trade and global economic activity
contracted sharply. In 2006, the U.S. unemployment rate
fell to about 4.0%, while the economy grew at an annual
rate of 2.7%, and it experienced a merchandise trade deficit
of over -$800 billion. In 2018, the U.S. rate of
unemployment was around 3.5%, while the merchandise
trade deficit increased to -$887 billion from -$805 billion in
Issues for Congress
The U.S. trade deficit raises a number of questions for
If the trade deficit is the result of U.S. macroeconomic
policies, as is generally accepted, what is the best
approach to reduce that deficit?
How much importance should Congress give to
lowering the trade deficit relative to competing policy
What is the impact of foreign trade barriers and unfair
trade practices on the trade deficit?
What role does the trade deficit play relative to other
domestic factors in determining wages and employment
in the economy?
CRS In Focus IF10161, International Trade Agreements
and Job Estimates
CRS Report R44044, U.S. Trade with Free Trade
Agreement (FTA) Partners
CRS Report R45243, Trade Deficits and U.S. Trade Policy
The U.S. Trade Deficit: An Overview
James K. Jackson, Specialist in International Trade and
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