Last week the U.S. Census Bureau and the U.S. Bureau of Economic Analysis released the Monthly US Trade in Goods and Services report. The report highlights that the U.S. goods and services deficit reached 80.7 billion dollars in December, a 1.8 percent increase over the previous month. Overall, the total US trade deficit for 2021 increased 27 percent reaching $859.1 billion, the largest trade deficit ever for the United States. As shown in Figure 1, the trade balance has been steadily decreasing over the past two years. This growing trade deficit is attributed to American’s increased importation of foreign goods and a sharp decline in the exportation of services as international travel was hindered during the pandemic. The increase in imports can partially be attributed to the strong recovery. Economic growth in other parts of the world has not been as robust and this has slowed exports. Moreover, Americans have reduced their spending on domestic travel and restaurants (domestically produced services) and shifted their consumption to spending on goods like furniture and electronics which are likely imported. If the pandemic continues to recede, we may see the trade deficit begin to shrink as U.S. consumers resume their pre-pandemic level of consumption of vacations and dining and world growth increase the demand for U.S. production.
