Jan 26, 2022 - Economy

Surprising pandemic side effect: Soaring trade deficits

Source: Census Bureau and Bureau of Economic Analysis; Chart: Axios Visuals

Inflation and jobs may get all the economic headlines, but meanwhile a big shift is taking place in the underpinnings of the world economy: The U.S. trade deficit is soaring.

What's happening: Americans' spending on imported physical goods has gone through the roof, while exports are growing slowly, making the U.S. the world's consumer of last resort.

Why it matters: High trade deficits are enabling people to get the things they need in the pandemic. The flip side is the higher U.S. government debt that helped fund the surge in spending, much of it now held by overseas investors.

By the numbers: Through the first 11 months of 2021, Americans imported $290 billion more in goods than in the same period of 2019.

  • Meanwhile, exports of goods rose slowly, up only $86 billion, and exports of services plunged as international travel collapsed (in the arithmetic of trade, when an overseas visitor spends money in the U.S., it counts as a services export).
  • The result: An overall trade deficit 48% higher than 2019. While smaller as a share of the economy than in the years before the global financial crisis, it is on track to be the highest on record by dollar amount in 2021.

The big picture: The pandemic has caused people to shift their spending away from domestically produced services and toward imported durable goods. And the U.S. government's pandemic aid packages have stimulated domestic demand.

  • The wider trade deficit reflects Americans' ability to buy goods they want; supply shortages and inflation would be worse if somehow policymakers had used tariffs or import quotas to prevent the trade balance from blowing out.

Flashback: President Trump made reducing the trade deficit central to his rhetoric and policy goals, though with limited results.

The trade deficit increased during his time in office, and China's purchases of American goods have lagged those promised in Trump's signature Phase One trade deal in early 2020.

The bottom line: More balanced global trade would lessen the risks of financial disruption. But in the near-term, the surge in goods imports is the only thing keeping shortages and inflation from getting even worse.

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