Reliance on Foreign Oil Negatively Impacts U.S. Trade Deficit

Question: What does our reliance on foreign oil have to do with the U.S. trade deficit?

Answer: If we really want to address the U.S. trade deficit we should be reducing our reliance on foreign oil.
We know that U.S. exports have been growing at a record pace and have been responsible for sustaining U.S. economic growth and 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 didn’t know is that the deficit would be declining even faster but for the rapid increase in energy imports.

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 the dollar amount of energy imports is a result of the significant increases in energy prices. Imports on volume basis have been pretty flat. If our oil imports alone had remained at the same dollar level as March 2007, the March 2008 trade deficit would have been nearly $8 billion, or 12 percent, lower. Since March 2007 the oil deficit has gone from accounting for about 32 percent of the total deficit to over 44 percent of 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 53 percent larger than imports all products from China.