Summary
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The U.S. economy is prey to a substantial and persistent trade deficit. Even in the 2002-2006 period when the dollar crumbled in value, U.S. spending growth on foreign imports outstripped foreign demand growth for U.S. exports.
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The trade deficit with China is by far the widest. The United States imports 4.5 times as much as it exports with China. By comparison, it imports more than twice as much as it exports with the OPEC countries.
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If we examine the deficit from the perspective of end-use commodity groups, two major categories stand out: consumer goods and industrial supplies.
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The trend in the consumer goods deficit would eventually reverse if Chinese authorities floated the yuan freely against the dollar.
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Given the consensus for a soft recovery in U.S. domestic demand and continued weakness in the greenback on a trade-weighted basis, we expect U.S. imports to grow less vigorously in the year ahead than in previous cycles.
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Despite renewed growth in U.S. economic activity, trade is most likely to make a slim negative contribution, if any at all, to GDP growth in 2010.
