South-Westerns' Economic News Summaries
U.S. Trade Deficit Grows
Topic International Trade
Key Words

Imports, Exports, and Trade Deficits

News Story

The U.S. trade deficit was one billion dollars more in August than in July. The U.S. trade deficit measure results from the difference between exports and imports. Exports are valued as the dollar amount of goods and services produced in the U.S. and sold to other nations. Imports are valued as the spending of individual consumers, business firms, and government for purchases of goods and services of foreign nations.

Until this recent measurement, the trade deficit had been growing at an average rate of about $57.9 billion per month. The August total of $59 billion was up from about $58 billion in July. Much of the difference can be attributed to import prices, which have been rising steadily with the increase in petroleum prices. As import prices rise, so does the dollar value measure of imports.

“There is an imbalance in terms of the demand and supply of energy which continues to be satisfied, or is increasingly satisfied, by external sources of energy products,” said Brian Bethune, an economist at Global Insight, an economic research firm. “Now we have a situation that has been even more complicated because of a domestic supply shock.”

U.S. exports have actually continued to rise steadily--at some points, even faster than imports-- but the increasing prices of imported goods have more than offset the export growth: thus, a surging deficit. If you take petroleum products out of the calculation, the trade deficit would actually narrow to $41.7 billion in August, compared to $42.8 billion in July.

Hurricanes Katrina and Rita will affect future measurements of the trade deficit. These two hurricanes severely disrupted the U.S. ability to produce and process oil in the region hit by the storms. Energy costs were driven to new heights as a result. To close the gap between domestic production and demand, more energy has been imported at higher prices; these energy imports will likely raise the next measure of the deficit to record levels.

Questions
1.

Define Exports

2. Define Imports
3. Explain how the trade deficit is measured and why increasing import prices have outweigh growing exports to result in the growth of the U.S. trade deficit. Who measures the trade deficit on a regular basis?
Source Vikas Bajaj, “U.S. Trade Deficit Rose to $59 Billion in August”, The New York Times Online, October 13, 2005.
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