Feb 9, 2022 - Economy

America's buying habit sends trade deficit to record

Illustration of a shopping cart with boxes in it.

Illustration: Sarah Grillo/Axios

The trade deficit hit a record last year, as Americans attempted to ease pandemic-era sorrows by acquiring a mountain of consumer goods.

Driving the news: The trade deficit for the full year of 2021 hit a record $859 billion, 27% more than the previous year, as Americans bought cellphones, toys, games and household goods, the Bureau of Economic Analysis reported.

Why it matters: Some thought the pandemic — and recent supply chain snarls — might force a rethink of the consumption-heavy structure of the American economy, perhaps by boosting activity at American factories.

  • But the trade numbers suggest COVID could actually amplify the economy's emphasis on consumption, at least for now.

How it works: The trade deficit is the gap between what the U.S. sells and what it buys from foreign countries. Typically when the trade deficit grows, it's because American consumption — a key driver of the economy — is relatively strong.

  • That doesn't mean a large deficit is always a great thing, however. The growth of the U.S. trade deficit is closely connected to the deindustrialization that's taken place since the 1970s — and the loss of factory jobs.

State of play: The pandemic drove Americans to shift spending away from services — eating out, haircuts, trips to the movies — and toward goods — cellphones, home furnishings, cars, etc. — a lot of which are imported.

  • That occurred, largely, because the government's pandemic-related stimulus checks ensured people had the money to spend.
Graph showing U.S. annual trade deficit from 1992 to 2021.
Data: FactSet; Chart: Kavya Beheraj/Axios

Of note: U.S. exports also surged last year, rising 18.5% — just not as much as imports, which rose 20.5%.

Our thought bubble: A rather poetic symbol for the transformation of the American economy over the last 50 years is the self-storage space. These goods graveyards often occupy former factory buildings, which once churned out products and provided jobs.

  • Today they're simply places to sock away excess junk. Hardly anybody works there.

What we're watching: The dollar. The greenback could strengthen this year if the Fed lift rates. (Here's why.)

  • A stronger dollar makes U.S. exports harder to sell abroad and makes imports cheaper. That's a recipe for the trade deficit to get even bigger.
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