US trade deficit surged in 2022 nearing US$1 trillion

President Joe Biden has made few remarks about the trade gap specifically but his administration is pushing to bring more manufacturing back to the US and allied countries. Photo / Susan Walsh, AP

The overall US trade deficit rose 12.2 per cent last year, nearing US$1 trillion as Americans purchased large volumes of foreign machinery, medicines, industrial supplies and car parts, according to data released Tuesday by the Commerce Department.

The goods and services deficit reached US$948.1 billion, its largest total on record, after rising US$103 billion from the previous year.

The data showed evidence of the U.S. economy continuing to recover from the pandemic, which had held down spending on services such as travel and entertainment and pushed up purchases of imported goods. Rapid inflation and higher energy prices were responsible for some of the growth, because the trade data is not adjusted for inflation.

The numbers also showed signs that global supply chains appear to be reshuffling, as the US government erects more barriers to trade with China and businesses seek to diversify where they source materials and goods.

The Biden administration has identified the nation’s reliance on China for materials such as solar panels and electric vehicle batteries as a security risk, and introduced incentives and penalties to try to persuade companies to change supply chains that proved vulnerable to pandemic disruptions.

The US trade deficit in goods with Mexico, Canada, India, South Korea, Vietnam and Taiwan all grew strongly last year as manufacturers sought new sources of foreign products.

Still, many companies have so far proved unwilling or unable to cut ties with China, which continues to house the world’s largest concentration of factories. Despite rising tensions between the world’s biggest economies — which were further strained last week by the discovery of a Chinese spy balloon flying over the United States — trade between the countries remains strong.

Overall trade with China last year easily surpassed previous records, and the US trade deficit with China grew 8.3 per cent annually to US$382.9 billion, the second highest total on record.

There was also little sign that the United States is retreating from trade with the world overall, even as geopolitical tensions with Russia and China rise.

Russia’s war with Ukraine has pushed up energy and food prices globally and stoked inflation, but it has also played a role in bolstering American trade. After cutting many economic ties with Russia, the European Union has turned to purchasing more energy products from the United States.

Partly as a result of shipments of crude oil, fuel oil and natural gas to Europe, total U.S. exports grew more quickly than imports last year. A recovery in the U.S. travel and transportation sector following the pandemic also pushed up exports of American services.

The overall volume of US imports remained much larger than exports, however, resulting in a trade deficit. Exports of goods and services rose 17.7 per cent to US$3 trillion, while imports rose 16.3 per cent to US$4 trillion. The strong value of the US dollar also made foreign goods relatively cheap compared with American ones, driving up the trade deficit.

In December, US exports fell slightly from the previous month to US$250.2 billion, as the global economy slowed and the United States sent fewer industrial materials and consumer goods abroad. Imports edged up to US$317.6 billion.

Economists and politicians have varying views about how much the trade deficit matters for the health of the US economy. Some economists point out that the trade deficit tends to grow when the US economy does, and Americans are more able to buy the goods and services they want from abroad. But many also worry that sustained trade deficits can result in lower employment and economic growth in the United States.

Former President Donald Trump routinely blasted the trade deficit as a sign of economic weakness and called for narrowing the gap. President Joe Biden has made few remarks about the trade gap specifically but his administration is pushing to bring more manufacturing back to the United States and allied countries.

The United States has been bringing in a smaller share of its imported goods from China in recent years, in part because of Trump-era tariffs and other restrictions on trade.

One beneficiary of the shift has been Mexico, now a destination for more global factories hoping to serve the United States. Data released Tuesday showed strong growth in trade with Mexico last year, with exports growing 17.3 per cent and imports increasing 18.3 per cent. The US trade deficit with Mexico grew 20.7 per cent to US$130 billion.

When economists calculate the gross domestic product, a measure of America’s economic activity, they add exports to the national figures for government and private investment and spending, and subtract imports to estimate the value of the goods and services that are produced in the United States.

Based on that calculation, international trade was a significant source of economic growth for the United States last year, said Mark Zandi, the chief economist of Moody’s Analytics.

Overall, Americans shifted from buying a larger proportion of imported goods during pandemic lockdowns to spending more on services, such as dining, entertainment and travel, which are less likely to be imported.

“This was a big swing from 2020 and 2021 when trade was a major drag on growth, and the deficit ballooned out,” Zandi said, adding that “a weak global economy will be a headwind to U.S. exports and further improvement in the trade deficit this year.”

Written by: Ana Swanson

© 2023 THE NEW YORK TIMES