Jan 27, 2022 - Economy & Business

COVID created an epic U.S. trade gap

Chart: Axios Visuals. Data: Census Bureau/Bureau of Economic Analysis
Chart: Axios Visuals. Data: Census Bureau/Bureau of Economic Analysis

The details of the blockbuster fourth quarter GDP report released Thursday morning tell a vivid story of how the underpinnings of the world economy have been reshaped by the pandemic.

One example: In the arithmetic around U.S. economic output, trade acted as a more severe drag last year than it has in a generation.

Why it matters: High trade deficits are enabling Americans 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.

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.

By the numbers: In 2021, net exports subtracted 1.39 percentage points from overall economic growth, the highest since 1984. Before that, you have to go back to 1948!

  • That is closely related to higher consumer spending on durable goods, which added 1.38 percentage points to the GDP, the most since 1955.
  • The same thing shows up in trade deficit data. Through the first 11 months of 2021, Americans imported $290 billion more in goods than in the same period of 2019, as exports of goods rose only $86 billion. The overall trade deficit from January through November is 48% higher than in 2019.

Supply shortages and inflation would be worse if somehow policymakers had used tariffs or import quotas to prevent the trade balance from blowing out.

  • "It's not clear that wishing anything else had happened would have led to a better place," Mary Lovely, a senior fellow at the Peterson Institute for International Economics, told Axios. "I don't see how it would have been better if I hadn't been able to buy a new laptop during the pandemic."

Yes but: the flip side of higher trade deficits is higher debt. In the third quarter, net U.S. borrowing from abroad was $127 billion as the current account deficit widened 8.3%.

  • The ships lined up U.S. ports waiting to deliver physical goods while overseas companies, and government entities buy up Treasury bonds and other U.S. financial assets are part of the same circular system.

The bottom line: Bigger trade imbalances allowed Americans to keep consuming through the pandemic, but could fuel global financial imbalances if they become a fact of life.

Editor's note: This story originally published on Jan. 27.

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