Trade Imbalance (3)

Since 1960, the U.S. trade imbalance looks like this:

SOURCE: ST. LOUIS FED: FRED: TRADE IMBALANCE: BOPBCA

Stability until Nixon went off gold in 1971. Jittery then, but no real change until after the 1981-82 recession. Since that change, the graph shows the trade deficit increasing when the economy grows, and falling during recession, as Bastiat said.

The above graph has no context. To see the trade deficit in context, divide by GDP:

(The first graph shows monthly (BOPBCA) data. The second uses annual (BOPBCAA) data to work with annual GDP data. Annual data makes the second graph less jittery. Dividing by GDP provides context.)

At first glance, the second graph shows a general downward trend. But look closer. In the 1960s, we had a consistent (if small) trade surplus. In the 1970s there was more variation, but it looks to average out about zero for the decade: neither a trade deficit nor surplus. A trade balance, really, from 1969 to 1981.

Since 1981 or '82, the trade deficit grew substantially. (Even during that recession.)

The low point on the second graph occurs around 2005-06. The Y-Axis value there is -0.06, or 6 percent of GDP. That's more than the rough 4% estimate I came up with two or three posts back. (The trade deficit since fell to 4% with the recession.)

Okay, so the trade deficit is bigger than I thought. You could arbitrarily say it becomes a problem at 5% of GDP... and it has been more than 5% of GDP. I say the problem is not the level that has been reached, but the 30-year trend of worsening imbalance.