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A Tale of Two Deficits: Why Increased U.S. Energy Production is the Key to Reducing the U.S. Trade Deficit

We know that U.S. exports have been growing at a record pace and have been responsible for sustaining U.S. economic growth, and supporting manufacturing activity as other sectors struggle.  We know that as a result of this export growth the U.S. trade deficit is declining.  What you probably don’t know is that the deficit would be declining even faster but for the rapid increase in energy imports. 

The non-energy trade deficit has declined by 26ver the last year.  However, the energy trade deficit has increased by 29span style="mso-spacerun: yes">  As a result, much of the positive effect on the trade deficit from our growing exports has been offset by the even faster rise in energy imports (oil, natural gas, and other fuel products).  The significant increase in energy imports reflects the significant increases in energy prices.  Imports on a volume basis have been pretty flat.  If the energy trade deficit had remained unchanged over the last year, the total trade deficit would be 12ower.  If our energy deficit had remained unchanged since 2000, our total trade deficit would be 25ower. 

The surge in the energy deficit is now the main factor driving the total U.S. trade deficit.  Between 2000 and 2007, the energy deficit went from accounting for about 28f the total deficit to over 40f the total deficit in 2007.  Between March 2007 and March 2008, the energy deficit has gone from accounting for 40f the total deficit to accounting for 54f the total deficit.

The impact of rising energy imports is now far more significant than the impact of imports from China.  For the first quarter of 2008, imports of energy products were 53arger than imports of all products from China.  Between the first quarter of 2007 and the first quarter of 2008, the trade deficit with China declined by 4while the trade deficit in energy products increased by 48o:p>

As these data show, if we want to significantly reduce the U.S. trade deficit, we have to reduce our imports of energy products. 

Posted by: Ways and Means Republican Office (06-02-2008, 11:50 AM) filed under Full Committee, Trade

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