2020 Saw the Largest Single Period Growth in Trade Deficit
In the second quarter of 2020 as the pandemic took hold in the U.S., the U.S. trade balance—the total exports minus imports of goods and services—declined by $31 billion, the largest single quarter decline for the United States in current data according to numbers from the Bureau of Economic Analysis (BEA).
It was the largest single period decline in exports of goods and services, and it also coincided with a sharp decline in other sources like primary income—the income paid in the U.S. from property ownership, employee wages, and tax compensation for foreign citizens, like embassy workers.
Imports fell precipitously as well, but not enough to offset the large decline in exports. While most types of exports declined, two categories of exports—food and industrial supplies actually increased during the pandemic.
Currently the trade deficit is on par with its previously lowest point in 2006, around the 2007-2008 financial collapse. While the financial collapse wreaked havoc on the American financial system and caused a sudden drop in exports and imports, it actually led to a huge positive swing in the trade deficit as imports fell more than exports.
Immediately prior to the pandemic, the trade deficit was declining for one of the first times in a decade potentially as a result of the Trump tariffs that began in 2018.
Pandemic Leads to More People Buying Goods, Not Services
Since the steep drop at the outset of the pandemic, imports of goods have returned in force, demonstrably more so than exports.
Much of that has been driven by a growth in expenditures of goods. Despite the pandemic restrictions through the end of 2020, spending on goods now outpaces pre-pandemic values substantially in a way that spending on services has not according to Federal Reserve Economic Data (FRED).
As the economy returns, imports, exports and expenditures continue to grow, but the emphasis on goods and import of goods means that the trade balance remains at historic lows.