Here’s how bad America’s recent trade performance has been – at least in inflation-adjusted terms: Yesterday’s first official read on real economic growth in the fourth quarter of 2021 showed that the sequential change in the price-adjusted trade deficit neither added to nor subtracted from the 6.71 percent increase in the price-adjusted gross domestic product (GDP) at annual rates. And that was the best such trade-related result since the second quarter of 2020 – when the peak of the first wave of the CCP Virus stateside tanked the trade deficit because the entire economy crashed.
For the full year last year, the story was much different and much worse – indeed historically so. More on that later. For now, let’s just observe that the latest, better quarter-to-quarter numbers are still noteworthy. Nonethless, although because the CCP Virus isn’t yet in the rearview mirror, and America’s public health authorities are showing little recognition that the decreasing severity of successive strains safely permits faster progress toward normalizing economic and other aspects of life again, it’s still too early to declare that a normalization of trade flows is truly in sight.
The combined goods and services trade deficit rose by 1.63 percent between 2021’s third and fourth quarters, from $1.3166 trillion to $1.3380 trillion. The latter is the sixth straight quarterly record, but the 1.63 percent rate of increase was the second slowest of the pandemic period – behind only the 1.50 percent widening between the first and second quarters of last year.
Moreover, that quarterly increase was too small to either speed up the economy’s growth or slow it down. And this zero effect was also the best in this series since that second quarter of 2020 – when the recession-induced drop in the gap added 1.53 percentage points to growth. (That said, this boost was awfully modest given that the economy shrank by a nauseating 31.2 percent at annual rates that was by far the worst such performance since the Commerce Department began putting out quarterly GDP statistics in 1947.)
Much better – the sequential improvement in the real trade gap’s impact on growth (from the 1.26 percentage point subtraction during the third quarter) was the biggest since the 1.58 percentage point turnaround between the first and second quarters of 2020.
And perhaps best of all in this vein – between the third and fourth quarters, the economy’s constant dollar growth sped up strongly (from the 2.28 annualized rate in the third quarter) with hardly any deterioration in the trade shortfall. Nonetheless, the real trade deficit as a share of real GDP dipped only fractionally from the record 6.76 percent reached in the third quarter.
Total price-adjusted exports advanced sequentially in the fourth quarter from $2.2730 trillion annualized to $2.4009 trillion. This 5.63 percent surge was the greatest since the 11.49 percent jump in the third quarter of 2020, when the economy was bouncing back strongly from the deep slump triggered by the virus’ first wave. But the absolute level is still significantly below the record of $2.5829 trillion in the second quarter of 2018.
The much greater amount of total imports increased as well, but by a slower 4.16 percent. The $3.7389 trillion annualized total, however, was the fourth straight quarterly record,
The fourth quarter goods trade deficit of $1.4601 trillion annualized was a more discouraging result. It was not only the sixth straight quarterly record, but the 2.72 percent increase was the fastest since the first quarter’s 6.36 percent.
Goods exports improved by 5.61 percent sequentially in the fourth quarter, from $1.7013 trillion to $1.7967 trillion annualized. The increase was the best since the 5.87 percent achieved in the fourth quarter of 2020, but the total was still somewhat below the all-time high of $1.8203 trillion in the second quarter of 2018.
Goods imports of $3.2586 trillion annualized, however, were a record, Their 4.29 percent sequential growth rate was strong, too, and also the highest since the fourth quarter of 2020 (6.80 percent).
In contrast to goods, the after-inflation service trade surplus registered its first expansion since the pandemic’s arrival in the United States in the second quarter of 2020,with the fourth quarter’s $124.4 billion annualized total coming in 16.04 percent better than the third quarter’s $107.2 billion.
Even so, the fourth quarter figure makes clear how hard services trade has still been hit by the pandemic when adjusted for price changes. That third quarter figure stemmed from an utterly unprcedented 29.66 percent sequential collapse of the surplus. Indeed, during the first quarter of 2020, the final data quarter before the pandemic began roiling the U.S. economy, the annualized services surplus stood at $200.9 billion.
Real services exports led the way, growing by 5.69 percent on quarter – the best such performance since the 5.83 percent of the fourth quarter of 2006. Yet the $633.9 billion total at annual rates was still 18.82 percent below the peak of $780.9 billion, reached in the first quarter of 2018.
Constant dollar services imports rose as well, but only by 3.51 percent. And at $509.5 billion annualized, this latest quarterly total remained 7.75 percent less than these purchases all-time high – the $552.3 billion in the third quarter of 2019.
Turning to the annual results, the 2021 combined goods and services trade gap of $1.2813 trillion smashed the old record of $942.7 billion set in 2020 by 36.62 percent. The all-time high was the third straight, and the rate of increase by far the fastest ever (at least going back to 2002, when the Commerce Department began presenting the combined deficit figure), topping 2015’s 25.45 percent runner-up.
Further, the bite out of the change in real GDP taken by this deficit increase swelled in both relative and absolute terms. In 2020, the shortfall’s increase worsened that year’s 3.40 percent slump in price-adjusted GDP by 0.29 percent points. In other words, the trade gap’s rise accounted for 8.53 percent of the decline.
Last year, the rise of the trade deficit cut 1.39 percentage points out of constant dollar growth of 5.67 percent. In other words, it reduced that year’s growth by 19.69 percent. In these relative terms, that’s the biggest subtraction from growth since the deficit’s increase in 2015 sliced 0.78 percentage points out of that year’s 2.71 advance in real GDP , thus reducing the increase by 22.35 percent.
But it’s still a far cry from 1958, where the price-adjusted trade deficit’s increase reduced growth by 117.57 percent – literally overwhelming all the other parts of the economy that were expanding (though on net modestly). Specifically, without the 0.87 percentage point trade deficit hit, real GDP would have eaked out a 0.13 percent annual expansion rather than a 0.74 percent dip.
In absolute terms, that 1.39 percentage point drag on real growth in 2021 was the biggest annual total since 1984’s 1.54 percentage points out of 7.24 percent growth.
At 6.60 percent of real GDP, the full-year 2021 inflation-adjusted combined trade deficit easily topped the previous mark of 6.14 percent set in 2005, and the 28.65 percent rise in this figure was the fastest rate going back to 2002.
Inflation-adjusted total exports did climb by 4.64 percent in 2021 – from $2.2076 trillion to $2.3101 trillion. The rate of increase was the best since 2011’s 7.17 percent. But the total is still 9.61 percent below the record of 2,5556 trillion set in 2018.
Constant dollar combined goods and services imports did reach an all-time high in 2021, with the $3.5914 trillion total breaking the previous record of $3.5492 (set in 2019) trillion by a healthy 3.82 percent. And the 14 percent yearly rise the fastest since the 16.21 percent pop in 1988.
The real goods trade deficit of $1.4198 trillion in 2021 was 24.17 percent higher than 2020;s $1.1434 trillion figure. Both the latest total and the yearly increase were records (again, going back to 2002).
Inflation-adjusted goods exports rose by 7.64 percent on year in 2021, from $1.6068 trillion to $1.7296 trillion. The rate of increase was the fastest since the 15.14 percent recorded in 2010 – early in the recovery from the Great Recession that followed the global financial crisis. But the absolute level is 3.36 percent below 2018’s all-time high of $1.7897 trillion.
After-inflation goods imports did set a record in 2021 – $3.1494 trillion – while the 14.51 percent annual increase was the fastest since the 15.38 percent, also reached in 2010.
The ongoing pain in services trade was visible in the 1.30 percent annual decline in services exports in 2021, from $617.2 billion to $609.2 billion. The total was the lowest since the $572.7 billion during the Great Recession year of 2009, and the drop was the first since a fractional loss in 2016 – the only other year on record seeing a decrease. These transactions, moreover, are off 20.90 percent from the 2018 peak of $770.2 billion.
Last year actually saw a record annual 11.56 percent rise in services imports – from $423.8 billion to $472.8 billion. But the annual total was the second lowest since 2013, and 13.63 percent below the all-time high of $547.4 billion, set in the final pre-pandemic year 2019.
As mentioned near the beginning, between the persistence of the CCP Virus and of federal mitigation approaches that seem increasingly outdated, it’s tough to read too much into the relatively good trade numbers of the fourth quarter. Add to that great uncertainty about how much monetary policy tightening the Federal Reserve is really willing to impose over any serious length of time, and about how long global supply chains will remain snagged for so many reasons (e.g., the difficulty of adding new worldwide semiconductor production capacity quickly, China’s stubborn, lockdowns-obsessed Zero Covid policy) and the future of the inflation-adjusted trade deficit and its effects on growth seem as murky as ever.