The Trade Picture Brightens

By January 12, 2006Economy

The Commerce Department reported today that the monthly trade deficit fell in November to $64 billion from $68 billion in October. The Washington Post correctly points out that even with this improvement, the overall trade deficit for 2005 will likely be a record. However, with the price of oil imports rising 43 percent for the year overall, is it any wonder that trade deficit expanded?

We here at the NAM have been saying for a while that one thing that is needed for the trade deficit to come down is for there to be a correction in the dollar after a 26 percent rise from 1997-2001. As it turns out, despite some upward movement last year, the dollar has fallen by 11 percent since early 2002. And, in fact, the path of exports and imports is starting to improve. As the chart below shows, the adjusting for changes prices, merchandise exports have actually grown faster (26%) than imports (20%) since the end of 2002. This has been true for capital goods, autos, and even consumer goods. Looking forward to 2006, when we expect the dollar correction to continue, exports will likely continue to outpace imports and we should expect to see the trade deficit begin to moderate in both dollar terms and as a share of GDP.