By Jeff Ferry, CPA Research Director
The United States trade deficit for 2016 rose to $502.3 billion, its highest level since 2012, as a growing U.S. economy, a rising U.S. dollar, mercantilist practices by many foreign trading partners, and generally lackluster economic growth in foreign markets combined to make the trade balance a negative force in the U.S. economy.
According to U.S. Department of Commerce figures, the 2016 trade deficit was 0.4% worse than the 2015 deficit of $500.4 billion. It’s equivalent to 2.7% of last year’s GDP, estimated at $18. 567 trillion dollars, making it a significant drag on economic growth. The U.S has now run a trade deficit for 41 consecutive years—our last trade surplus was in 1975.
There are some bright spots in the Commerce Department’s 50-page report, but in general, the latest statistics confirm the challenge of an American manufacturing sector struggling to compete in global markets, with a depressing impact on jobs and communities that have depended on manufacturing. Our trade balance has typically consisted of a deficit on goods and a surplus on services. Last year was no exception. The nation showed a deficit of $750.1 billion on goods, an improvement of 1.6% on the 2015 goods deficit of $762.6 billion, and a surplus on services of $247.8 billion, a decline of 5.5% from the previous year’s $262.2 billion surplus. It’s good to have a surplus on services, but services (comprising items like financial services, insurance, and tourism) are less labor-intensive than goods. So our deficit on goods eliminates many more jobs than our surplus on services creates.
One of the strongest trends in our trade flows in recent years has been the rise in domestic production of petroleum-related products, which is reducing our dependence on imported fossil fuels. In 2016, our trade deficit in such products improved substantially from $84.6 billion to $56.8 billion. Many experts expect us to reach balance and then become a net exporter of petroleum products in the near future. However, the bad news is that our non-petroleum goods trade deficit actually worsened in 2016, moving from negative $661.1 billion in 2015 to negative $677.5 billion last year.
Aerospace Better, InfoTech Flat
One bright spot in the trade figures was aerospace, where our trade surplus surged, up 9% from $78.7 billion in 2015 to $85.8 billion last year. The improvement in aerospace helped drive the broader category of Advanced Technology Products (ATP) better, from a 2015 deficit of $91.8 billion to a 2016 deficit of $83.1 billion. The ATP sector is dominated by information technology, called Information and Communications by Commerce, and our deficit there improved slightly to reach a still-huge $140.6 billion in 2016. This huge deficit in InfoTech, a sector where the U.S. leads the world, graphically illustrates the challenge we have to turn our innovation and stock market success into export success.
Finally, a look at which countries the U.S. has the largest bilateral deficits with shows little change. China continues to occupy the leading position, although our bilateral deficit with China has improved by $20 billion to $347.0 billion. Germany fell slightly, now ranking third in the list. Our deficit with Mexico worsened by $2.5 billion in 2016. The slight deterioration in our trade with Mexico was reinforced by a similar slight deterioration in our trade in the auto vehicles and parts sector, where our deficit worsened from $197.2 billion in 2015 to $200.3 billion last year. Mexico and the auto sector are two hot-button issues in Washington these days.
With a U.S. trade deficit stuck at half a trillion dollars a year, our trade deficit is larger than the entire GDP of all but 21 countries in the world. The huge trade deficit continues to hollow out U.S. manufacturing industry and depress real incomes in many parts of the country. All eyes are on the Trump Administration to see if it takes the decisive actions candidate Trump promised repeatedly in the election campaign.