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August 14, 2008

International Trade

By Wade Rousse

The latest data about international trade in goods and services were released Tuesday by the U.S. Census Bureau and the U.S. Bureau of Economic Analysis. The information describes the trade situation in June.

The chart below illustrates the U.S. trade situation over about the past ten years. As you can see, the negative number indicates we export less than we import. Therefore, we have a trade deficit. Notice also that from around 1997 to 2006, the trade deficit was getting larger and larger (more negative).

U.S. Trade Balance over the past ten years

Now, remember that one component of GDP is net exports to foreigners (NX). From 1997 to 2006, this increasing trade deficit sometimes caused net exports to subtract as much as 1% off of GDP growth.

As you can see, the trade deficit appears to have bottomed out in 2006. It has been improving recently and has contributed positively to GDP growth (recall the 2.4% contribution mentioned in the GDP component link above). Tuesday’s data, which showed a surge in exports, cut the trade deficit by 4.1 percent to $56.8 billion. This improving trade deficit suggests net exports will continue to add to GDP growth in the upcoming quarters.

Posted by Wade at August 14, 2008 4:35 PM

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