South-Western College Publishing - Economics  
U.S. Trade Gap Reaches New Record
Subject U.S. Trade Deficit
Topic International Trade
Key Words

Imports, Exports, and Energy Prices

News Story

International trade gaps reflect the difference between what a country buys from other countries (its imports) and what the same country sells to other countries (its exports). For the U.S., that difference between imports and exports reached nearly $56 billion in June.

The negative trade gap was larger than most economists expected. Both imports and exports contributed significantly to the gap, since imports increased and exports decreased. Imports rose by 3.3 percent to $148.64 billion, while exports fell by 4.3 percent to 92.82 billion.

The fall in exports comes from a lack of foreign demand in a number of categories of American manufactured goods. On the import side, in addition to the demand for foreign products increasing, analysts point out that continually rising energy prices are sending more American dollars overseas.

The surge in energy costs has been a major drag on economic growth as consumers are spending more on filling up their gas tanks, leaving less to spend on other products. Crude oil prices have hit record levels, spiking above the $45 per barrel level, and many analysts predict that consumers will be paying more for gasoline and other energy products in the coming months.

The June figures showed the nation's foreign energy bill to be $15.22 billion for the month, compared to only $13.74 billion in May. This trend in energy prices not only contributes to the increased trade gap; it leads to depressed consumer spending which could further affect the U.S. recovery.

(Updated October, 2004)

Questions
1.

Define a trade gap or deficit.

2. With the U.S. trade deficit growing, do you favor protecting American manufacturers from foreign imports? Why or why not?
3. Discuss the linkage between foreign energy costs and the U.S. trade gap.
Source The Associated Press, "U.S. Trade Gap Surges to a New Record", New York Times Online, August 13, 2004.

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