Economic Indicators | Trade and Globalization

U.S. trade deficit declined in 2012, but goods trade deficits with China, and in non-petroleum products, rose sharply

Share this page:

The U.S. Census Bureau reported on Friday that the U.S. trade deficit in goods and services declined from $559.9 billion in 2011 to $540.4 billion in 2012, an improvement of $19.5 billion (3.5 percent). This reflected a $16.8 billion (9.4 percent) improvement in the services trade surplus and a $2.7 billion (0.4 percent) improvement in the goods trade deficit.

Key numbers

  • 3.5% decrease in the trade deficit from 2011 to 2012: a 9.4% increase in the services trade surplus and a 0.4% decrease in the goods trade deficit
    • For oil goods, the deficit decreased by 10.7%
    • For non-oil goods, the deficit increased by 8.8%
  • 2.7 million jobs lost as a result of the trade deficit with China, 2001–2011

The overall improvement in the goods trade balance masked important structural shifts in U.S. goods trade. While the U.S. trade deficit in petroleum goods declined $34.8 billion (10.7 percent), the U.S. trade deficit in non-petroleum goods increased $35.3 billion (8.8 percent). Growing goods trade deficits have eliminated millions of U.S. manufacturing jobs over the past decade, and non-petroleum goods were responsible for the vast majority of the jobs displaced. Rapidly growing trade deficits in non-petroleum goods, especially manufactured products, represent a substantial threat to the recovery of U.S. manufacturing employment.

The trade deficit in non-petroleum goods ($436.6 billion in 2012) is dominated by the U.S. trade deficit in manufactured products (the trade deficit in manufactured goods increased $44.7 billion in 2012). Growing trade deficits in manufactured products have eliminated millions of U.S. manufacturing jobs in the past decade. For example, the rise in the U.S. trade deficit with China between 2001 and 2011 alone eliminated 2.7 million U.S. jobs, over 2.1 million (76.9 percent) of which were in manufacturing.

The U.S. trade deficit in non-oil goods has increased rapidly over the past three years

The U.S. trade deficit in non-oil goods has increased rapidly over the past three years, as shown in Figure A. The last sustained period of rapid growth in this deficit was between 2002 and 2005, when overall trade deficits and trade-related job losses grew rapidly. Overall GDP growth (which stimulates imports and growth of the trade deficit) also accelerated between 2002 and 2005, but GDP has not grown as rapidly over the past three years as in the earlier period. Going forward, with projections of weak U.S. and global GDP growth, rising trade deficits in non-oil products represent a growing threat to the fragile domestic recovery.

Figure A

U.S. non-petroleum goods trade deficit, 2000–2012

Year Deficit (nominal, in billions)
2000 327.839
2001 318.949
2002 375.093
2003 411.948
2004 487.552
2005 538.286
2006 557.109
2007 515.542
2008 430.099
2009 299.07
2010 369.662
2011 401.292
2012 436.589

Source: Author’s analysis of Bureau of Economic Analysis International Transactions database

Show table Copy data to Excel Embed this chart Get image

Growing trade deficits with China, Japan, and Korea were responsible for all of the increase in the non-oil goods trade deficit in 2012. The U.S. goods trade deficit with China reached an all-time high of $315.1 billion in 2012, an increase of $19.6 billion (6.6 percent). Trade with China involved less than $1 billion in trade in crude and refined petroleum products. China alone was responsible for nearly three quarters (71.9 percent) of the U.S. trade deficit in non-oil products in 2012. The U.S. goods trade deficit with Japan increased from $63.2 billion in 2011 to $76.3 billion in 2012, an increase of $13.1 billion (20.3 percent). This is largely explained by a surge in autos and auto-parts imports as Japan’s economy recovered from the effects of the 2011 tsunami.

The U.S. free trade agreement (FTA) with Korea took effect on March 15, 2011. Proponents of the FTA predicted a surge in U.S. exports to Korea would result. However, U.S. exports to Korea actually declined by $1.1 billion in 2012. Worse yet, the trade deficit with Korea increased $3.3 billion (25.0 percent) in 2012. These early, disappointing results reflect fundamental problems with current FTAs, as illustrated by growing U.S. trade deficits with Mexico and trade-related job losses after NAFTA.

Unfair trade practices are responsible for a substantial share of the U.S. trade deficit. A new EPI report has shown that eliminating currency manipulation by trading partners could reduce the U.S. trade deficit by between $190 billion and $400 billion and support the creation of between 2.2 million and 4.7 million U.S. jobs over the next three years. This could reduce the U.S. unemployment rate by between 1.0 and 2.1 percentage points, increase U.S. GDP by between $225 billion and $474 billion (a rise of between 1.4 percent and 3.1 percent), and reduce the U.S. federal budget deficit by between $78.8 billion and $165.8 billion per year (which would shrink the federal deficit by between 20.4 percent and 42.9 percent). In addition, China has massively and illegally subsidized many of its industries, including steel, glass, paper, and auto parts. Japan maintains one of the most closed markets in the world, especially in the auto and auto-parts sectors—and Korea, despite the recently enacted FTA, has yet to open its market to U.S. products.

The Obama administration has dramatically increased trade enforcement in the past four years, filing a number of successful complaints against China at the World Trade Organization, for example. However, much more needs to be done to eliminate unfair trade practices, especially currency manipulation. The administration has pursued quiet negotiations for four years, with limited success. The president can eliminate China’s currency manipulation with the stroke of a pen (Bergsten and Gagnon 2012, 18), and he should announce his intention to do so if China does not substantially revalue and cease all currency intervention in the near future.

With the U.S. and European economies headed into a downturn in 2013, the time has come to eliminate currency manipulation and rebalance global trade. Rebalancing trade offers the best hope for creating millions of U.S. jobs and stimulating GDP—at no cost to the government.

— The author thanks Josh Bivens for comments and Hilary Wething for research assistance.


See related work on Trade and Globalization

See more work by Robert E. Scott