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The U.S. Economy and its Merchandise Trade Position in 2017

Alex Hammer
(202) 205-3271
Alexander.Hammer@usitc.gov

The U.S. merchandise trade deficit widened by $59.4 billion, from $736.7 billion in 2016 to $796.2 billion in 2017 (up 8.1 percent). The increase unfolded during a time of slow but steady U.S. economic growth, and reflected developments in the energy-related products, chemicals, electronics, and minerals and metals sectors.

Macroeconomic Environment

U.S. real GDP grew by 2.3 percent year-on-year in 2017, compared to a more sluggish 1.5 percent over the corresponding period in 2016.[1] The uptick in U.S. real GDP growth in 2017 was attributable to increases in the consumption of durable goods, in exports of merchandise goods, and in investment in nonresidential structures (e.g., building construction).[2] In 2017 these three indicators grew at an annual rate of 6.7 percent, 6.6 percent, and 5.6 percent, respectively.[3] At the sectoral level, professional and business services, finance, insurance, real estate, rental and leasing, manufacturing, and retail trade grew the most in this period.[4] All of these gains were offset, in part, by merchandise goods imports, which increased by 7.1 percent in 2017, and a slowdown in residential fixed investment and state government spending, which grew by only 1.8 percent and 0.1 percent, respectively, in that year.[5]

Other economic indicators, such as industrial production, employment, inflation, and business confidence, also signaled slow but steady growth in the 2017 U.S. economy. Industrial production, for example, grew by 1.6 percent in 2017 after declining in the prior two years.[6] Unemployment continued the steady decreases it had shown since 2010, dropping to 4.4 percent by 2017 (its lowest level since 2000).[7] Civilian wages, which include the private sector as well as state and local government wages, increased by 2.7 percent from December 2016 to December 2017.[8] The consumer and producer price indexes increased by 2.1 percent and 2.4 percent, respectively, in 2017. This marked a modest growth in inflation relative to the prior five years, and brought these indexes closer to the 2 percent target deemed consistent with optimal price stability and employment levels by the Federal Reserve.[9] Moreover, business confidence was on the rise in 2017, with small but positive growth of 1.3 percent year-on-year, compared to near-zero growth in 2016 and declines in 2014 and 2015.[10] Finally, stock market performance was notably strong in 2017; the Dow surged 21.7 percent, compared to 1.9 percent and 4.8 percent in 2016 and 2015, respectively.[11]

Despite its accelerated pace in 2017, U.S. real GDP did not grow as quickly as in some of the United States’ major trading partners. World real GDP grew by 3.8 percent in 2017, the fastest it has risen since 2011; this growth was mostly attributable to investment recovery in advanced economies, robust growth in Asia (primarily China), and an upswing from “emerging Europe.”[12] In that year, real GDP growth in Asia, emerging Europe, and advanced Europe was 5.7 percent, 5.8 percent, and 2.3 percent, respectively.[13] Strong global economic growth in 2017 helped increase demand for U.S. exports around the world in that year.

A depreciated U.S. dollar improved the overall price competitiveness of U.S. traded goods in 2017. Relative to all trading partners, the U.S. dollar depreciated by 6.3 percent in 2017,[14] or 12.0 percent against the euro, 9.4 percent against the British pound, 6.8 percent against the Canadian dollar, and 6.5 percent against the Chinese yuan.[15] The depreciation of the dollar vis-à-vis the euro and pound in 2017 reflected strong European economic growth and a rebound in the value of those foreign currencies following their 2016 Brexit-related depreciations.[16]

U.S. Merchandise Trade Position

The widening of the U.S. merchandise trade deficit to $796.2 billion in 2017 reflected import growth that outpaced export growth (both in dollar terms and in percentage change). That year, the value of U.S. merchandise exports amounted to $1,546.7 billion, a 6.6 percent increase since 2016. This was mostly attributable to increases in exports of energy-related products, chemicals, and electronic products. In 2017 alone, the value of energy-related product exports grew by $44.8 billion (45.5 percent) compared to the year before, while exports of chemicals and electronic products grew by $9.2 billion (4.2 percent) and $7.9 billion (3.0 percent), respectively. The substantial increase in the value of energy-related exports was mostly attributable to increases in the export volume of petroleum products, crude petroleum, and natural gas. In 2017, the volume of crude petroleum exported rose by 85.6 percent, from 215 million barrels in 2016 to 400 million in 2017, while crude petroleum prices rose by about 18.6 percent from 2016.[17] One factor contributing to the increase in exports of U.S. crude was the removal of the U.S. government ban on most exports of U.S. crude to countries other than Canada in December 2015.[18] Aircraft and pharmaceutical exports decreased the most in 2017 relative to the year before.

U.S. merchandise imports amounted to $2,342.9 billion in 2017, a 7.1 percent increase over 2016.[19] Like exports, the largest dollar-denominated and percentage increases were in energy-related products, which grew by $40.2 billion (25.5 percent) in 2017.[20] Other prominent sources of imports in 2017 were electronic products, which grew by $32.3 billion (or 7.6 percent), and minerals and metals, which grew by $17.2 billion (9.4 percent). With respect to specific products, imports of crude petroleum, computers, and telecommunications equipment rose the most in value relative to 2016, while imports of precious metals, gold, and medicinal chemicals (i.e. pharmaceuticals) saw the largest decreases from that year.

 

[1] USDOC, BEA, “U.S. Economy at a Glance Table,” revised March 28, 2018.

[2] In addition to structures (e.g., buildings), nonresidential fixed investment also includes equipment and software.

[3] USDOC, BEA, “Real Gross Domestic Product, Chained Dollars Table,” revised April 27, 2018. Merchandise exports data are from USITC DataWeb/USDOC (accessed May 22, 2018).

[4] USDOC, BEA, “Contributions to Percent Change in Real GDP by Industry,” April 19, 2018.

[5] USDOC, BEA, “National Income and Product Accounts GDP: Fourth Quarter and Annual 2017,” March 28, 2018.

[6] U.S. Federal Reserve Bank of St. Louis, “Industrial Production Index Tables,” updated May 16, 2018.

[7] U.S. unemployment in 1999 and 2000 was 4.2 percent and 4.0 percent, respectively. Except for those two years, 2017 unemployment levels have not been so low since the 1960s. USDOL, BLS, “Labor Force Statistics from the Current Population (Table 1),” 2018; IMF, World Economic Outlook, April 2018.

[8] USDOL, BLS, Employment Cost Index Database: January 2014-December 2017, “Employment Cost Index Summary,” July 31, 2018.

[9] The referenced price changes are based on monthly averages of the consumer and producer price indices. USDOL, BLS, Consumer Price Index  and Producer Price Index Databases (accessed May 21, 2018); U.S. Federal Reserve Board, “Why Does the Federal Reserve Aim for 2 Percent Inflation?” January 26, 2015.

[10] OECD, “Business Confidence Index: Table,” 2018.

[11] The referenced annual rates derive from average of daily rates. Federal Reserve Bank of St. Louis, Dow Jones Industrial Average Database (accessed April 29, 2018).

[12] IMF, World Economic Outlook, April 2018; IMF, World Economic Outlook, October 2017. The IMF defines “emerging Europe” as comprising Poland, Romania, Russia, and Turkey.

[13] IMF, World Economic Outlook, April 2018; IMF, World Economic Outlook, October 2017.

[14] This index is a weighted average of the values of the U.S. dollar against the currencies of a large group of major U.S. trading partners. U.S. Federal Reserve Board, Real Trade Weighted U.S. Dollar Index: Broad Database (accessed May 22, 2018).

[15] Exchange rate changes were calculated by taking the differences in valuation between January 1, 2017, and December 31, 2017. U.S. Federal Reserve Board, Foreign Exchange Rates Database (accessed May 22, 2018).

[16] U.S. Department of the Treasury, “Foreign Exchange Policies of Major Trading Partners,” October 17, 2017; IMF, “World Economic Outlook: Brighter Prospects,” January 2018; EIU, “United Kingdom Risk: Financial Risk,” February 16, 2018.

[17] U.S. exports of crude as defined in subheading 2709.00 of the Harmonized Tariff Schedule of the United States (HTS). The Brent benchmark increased from an average of $43 per barrel in 2016 to an average of about $51 per barrel in 2017. U.S. Energy Information Agency, U.S. Energy Information Administration (EIA) 2017 Spot Prices database (accessed April 17, 2018).

[18] U.S. crude oil exports to Canada for consumption in Canada have been authorized since the 1980s.

[19] USITC DataWeb/USDOC (accessed May 22, 2018).

[20] In addition to the 18.6 percent price increase for crude petroleum mentioned earlier, the volume of U.S. crude imports increased by 9.4 percent, from 2.10 billion barrels in 2016 to 2.29 billion barrels in 2017.

 

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