A Tale of Two Trade Deficits

‘Most of our imports these days come from overseas”. (George W Bush)

The publication of the overseas trade figures rarely makes headline news these days, the balance of payments isn’t as high in the national consciousness as it once was in days of yore - there are still economics teachers out there who remember the sterling crises of the late 1960s and early 1970s! But today we had confirmation (in so far as the trade data can ever be relied upon) that the United States has seen the first reduction in its trade deficit in goods and services for six years whilst the UK has just notched up its biggest ever gap between the value of exports and imports!

Taking the UK first, the ONS reports that the deficit on goods and services in 2007 as a whole is provisionally estimated at £51.0 billion. This compares with the £46.4 billion deficit in 2006. The goods deficit in 2007 eas £87.4 billion compared with a £77.4 billion deficit in 2006. Over £40 bn of this gap is in trade with fellow members of the European Union. One important change in our trade performance has been the UK’s switch from being a net exporter of oil to being a net importer. In 2007, the deficit on trade in oil was £3.3 billion compared with a deficit of £3.4 billion in 2006

Across the water, the USA’s international trade gap fell to $711.6 billion from $758.5 billion in 2007 - tentative evidence that the fall in the external value of the dollar has arrested the stupendous increase in America’s trade with the rest of the world. However the trade deficit with China continued to widen - to $256 bn from $233 bn the year before - this is an economic and political issue that simply will not go away. The macroeconomic slowdown in the USA should helped to bring about a further improvement in the trade numbers as we head through 2008 as recession-like conditions cause a fall in the demand for imports.

Further reading

US annual trade deficit narrows

UK trade deficit worse than expected