Record U.S. Goods Trade Deficit in 2022 As Electronics, Vietnam Imports Rise

Key Points

  • The U.S. goods trade deficit ballooned to $1.19 trillion in 2022, an increase of 9% from the previous year. This is a U.S. and world record.
  • Imports of electronic goods, machinery & appliances, and vehicles account for more than half of the trade deficit.
  • While China continues to be the leading source of our deficits, Vietnam has surged to take third place in the ranking.
  • The persistent 47-year trade deficit is caused by foreign countries subsidizing their manufacturing industries, America’s uniquely low tariff rates, and the overvaluation of the dollar that makes foreign goods cheaper for the American consumer and U.S. exported goods more expensive abroad.

 

Snapshot of U.S. Goods Trade Deficit in 2022

The U.S. goods trade deficit surged in 2022 to a record $1.19 trillion, an increase of 9% from 2021. U.S. exports grew by $324.2 billion, an increase of 18%. However, imports increased by $425.7 billion to $3.28 trillion, an increase of 15%. In terms of total value, imports grew more than exports which results in the U.S. adding just over $100 billion to the trade deficit last year.

The U.S. has run an ongoing goods trade deficit for the past 47 years since 1975. Although the trade deficit shrunk in 2019 corresponding with the impact from the Section 301 tariffs on China, the trade deficit has grown in the previous three years since by $338 billion, an increase of 40%.

Almost all of the trade deficit is due to deficits on manufactured goods. A reliance on imports of key consumer goods from electronics, pharmaceuticals, furniture, and apparel all drive the trade deficit. As shown in Table 1, the largest goods driving the trade deficit are electronics, machinery, and vehicles. These three sectors account for 58% of the trade deficit. The top ten commodities with net trade deficits account for 88% of the overall trade deficit.

 

Table 1: Commodities Driving the U.S. Trade Deficit
(U.S. Dollars, Billions)

Commodity 2022 Export Value 2022 Import Value Trade Deficit % Change in Deficit from 2021 Share of Trade Deficit
Consumer Electronics (HS 85) $197.7 $465.6 -$267.9 21.7% 22.6%
Machinery / Appliances (HS 84) $229.6 $462.0 -$232.4 12.4% 19.6%
Vehicles (HS 87) $134.9 $322.3 -$187.4 21.4% 15.8%
Pharmaceuticals (HS 30) $83.5 $164.1 -$80.6 13.8% 6.8%
Furniture / Home Furnishings (HS 94) $10.1 $76.9 -$66.9 5.0% 5.7%
Apparel (knitted or crocheted) (HS 61) $3.5 $57.8 -$54.3 16.8% 4.6%
Toys / Games (HS 95) $7.4 $51.3 -$43.9 6.3% 3.7%
Apparel (not knitted or crocheted) (HS 62) $2.7 $42.5 -$39.9 28.2% 3.4%
Footwear (HS 64) $1.3 $35.9 -$34.6 34.2% 2.9%
Articles of iron and steel (HS 73) $22.0 $56.4 -$34.4 37.6% 2.9%
All Commodities $2,085.6 $3,277.3 -$1,191.8 9.3% 100%

Source: U.S. Census Bureau; CPA Calculations

 

The U.S. trade deficit is driven by structural imbalances in the global economy. Countries like China pursue industrial policies to boost manufacturing output for export. Therefore, it is not a coincidence that the trade deficit of manufactured goods corresponds to China’s largest export sectors and its record trade surplus. China’s development through export dependence has driven up the U.S. trade deficit over the past two decades.

 

Figure 1: Contribution to U.S. Trade Deficit by Country

 

Which Nations Account for the Skyrocketing Trade Deficit?

It is no accident that the trade deficit has widened as the U.S. joined free trade agreements, including NAFTA (now renamed USMCA), and granted most favored nation status to China. Free trade agreements have created a set of rules that encourage firms to outsource production and give them access to the U.S. consumer market.

The U.S. free trade agreement with Canada in 1988 was supplanted by the North American Free Trade Agreement (NAFTA) in 1994 with the inclusion of Mexico. The year when NAFTA entered into force, the trade deficit with Canada and Mexico combined grew by 48%. The following year, once manufacturing had been established in Mexico, the trade deficit with Canada and Mexico grew by 158% in 1995. Prior to NAFTA, the U.S. had a trade surplus with Mexico from 1991 to 1994. Since 1995, Mexico has been among the top five countries contributing to the U.S. trade deficit. Mexico

The admission of China to the World Trade Organization (WTO) in 2000 also marked a turning point in the growth of the U.S. trade deficit. China is the number one source of global trade imbalances and by far the largest persistent deficit with the U.S. Once a member of the WTO, China overtook Japan as the country with which the U.S. runs its largest trade deficit. Upon joining, the bilateral trade deficit with China was -$83.8 billion. Since joining the WTO, the U.S.-China trade deficit grew by nearly five times to -$418.2 billion in 2018, its largest gap. After the imposition of Section 301 tariffs, the trade deficit with China contracted by 18%. The tariffs have been partially effective in beginning the decoupling of the U.S. from China.

Yet, the tariffs have diverted trade that otherwise would have come from China to other countries in Southeast Asia, primarily Vietnam. Since the normalization of relations in 1995, imports from Vietnam have grown nearly every year to the point where Vietnam entered the top ten largest trade deficits with the U.S. in 2014 and now accounts for 10% of the overall U.S. trade deficit. As China developed and the cost of labor rose, manufacturers of apparel and furniture relocated to Vietnam. Now after the Section 301 tariffs on China, trade diversion, especially of electronics (HS 85), led U.S. imports from Vietnam to surge by 313% since 2018.

According to the General Department of Vietnam Customs, Vietnam ran a trade surplus of $12.4 billion in 2022. Its total exports in 2022 amounted to $371.3, billion up 11%. Over the past decade, Vietnam’s exports as a share of GDP have grown from 61% to 93%, among the highest in the world.

Vietnam runs a trade deficit with China, its largest importer which supplies it with raw materials, of $60.3 billion, up 11% in 2022. Much of these materials are used for manufacturing finished goods for export to the U.S. Vietnam’s economic model is similar to China’s export-led growth on a smaller scale. While Vietnam’s household consumption as a share of GDP of 55% in 2021 is far higher than China’s, it has decreased in recent years as the country’s export portfolio grows.

 

Figure 2: Trade Deficit by Country (1989-2022)

 

The U.S. trade deficit is driven by foreign countries subsidizing industries for export to the U.S. for their own economic growth. At the root of the imbalances are undervalued foreign currencies, coupled with a strong U.S. dollar, that makes foreign goods less expensive to the U.S. consumer and our exports more expensive in foreign markets.

 

Trade Deficits Actually Matter for Employment, National Security, and Growth

Many economists claim the trade deficit does not matter. Some even hold the trade deficit up as a badge of the strong purchasing power of the American consumer. This overly simplistic, myopic view ignores the consequences of a long-run trade deficit. Numerous studies show that the persistent trade deficit is responsible for millions of manufacturing job loss. This job loss impacts a disproportionate share of Americans without a college degree and has eliminated a pathway to the middle class that was once available for these workers.

This is not to mention the other consequences of the trade deficit that come along with reliance on foreign countries to manufacture key goods. A reliance on pharmaceutical imports for drugs critical to public health leads to shortages. The lack of manufacturing capacity to produce the semiconductors that power cutting edge technologies puts our national security at risk.

History shows that nations with trade surpluses enjoy faster economic growth than those with deficits. Imports rob domestic industries of the market opportunities they need to grow. That undermines job opportunities and wage levels.

Trade imbalances will continue to persist until the U.S. takes action to rebalance currency misalignments or even the playing field with target tariffs and rebuilding the manufacturing base through industrial policy. Policies such as production tax credits can incentivize producers to make their products in America and reverse the trade deficit. Prioritizing production instead of consumption, which will shrink the trade deficit, will lead to a more sustainable prosperity and long-term economic growth.

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