Sep 12, 2014 - 3:00pm

One Weird Fact About the Trade Deficit No One Has Noticed

Senior Vice President for International Policy

Fellow, International Policy

Over the years, Americans have grown accustomed to regular press accounts of the U.S. trade deficit. But in 2012 — for the 20 countries with which the United States has entered into a free-trade agreement (FTA) — the trade deficit vanished.

That’s right: It disappeared, and it hasn’t come back. Unnoticed at the time, the United States recorded a trade surplus with its 20 FTA partner countries in 2012.

Is this a big deal? No and yes.

No, because the trade balance is a poor measurement of whether a nation is prospering. In recent decades, the U.S. trade deficit has tended to expand during periods of vigorous economic growth and job creation (e.g., the late 1990s) and contract during times of economic distress (e.g., the 2008-2009 financial crisis).

As taught in any Economics 101 course, when a country invests more than it saves, the shortfall appears in its national accounts as a trade deficit.

Making value judgments about these issues can leave you tied up in knots: After all, what policymaker doesn’t like both investment and savings? By the same token, exports can drive growth, but so do imports of machinery for a factory or IT products that enhance our productivity.

But this has never stopped economic isolationists from claiming that free-trade agreements lead to trade deficits, which lead in turn to job losses. Organized labor, their think tank allies, and a handful of members of Congress have specialized in trade deficit fear-mongering in recent years.

But yes, this is a big deal, because the emergence of a trade surplus with America’s FTA partners pulls the rug out from under the isolationists’ favorite (admittedly bogus) argument.

It’s easy to see how FTAs might boost net exports. These agreements strip away the foreign tariffs and other barriers that shut out American exports. Meanwhile, the U.S. market is already largely open to imports, with a few notable exceptions (e.g., apparel, footwear, sugar). 

It turns out U.S. manufacturing is a big contributor to this surplus. The United States has recorded a trade surplus in manufactured goods with its FTA partner countries for each of the past five years, according to the U.S. Department of Commerce. This surplus reached $27 billion in 2009 and has since grown, topping $61 billion in 2013.

Also over the past five years, the shale revolution has transformed the U.S. energy sector, leading the United States to import less oil and gas, including from our FTA partners. Meanwhile, U.S. exports of refined products such as gasoline and diesel have expanded.

Meanwhile, “U.S. agricultural exports have been larger than U.S. agricultural imports since 1960, generating a surplus in U.S. agricultural trade,” according to the U.S. Department of Agriculture.

The final piece of the puzzle is U.S. trade in services. The U.S. is home to thousands of world-beating companies in a variety of services industries, from insurance to audiovisual, from IT and software to transportation and logistics. U.S. services exports topped $682 billion last year—leading the world—with a surplus of $232 billion.

Parsing all these numbers is challenging because country-specific services trade data are released months after country-specific data for merchandise trade (in fact, these services data for 2013 won’t be released until October, but we expect they’ll show an even larger surplus). The federal government never really adds them together. But we’ve done so below.

Bottom line: For those worried about the U.S. trade deficit, trade agreements are part of the solution—not the problem. 

U.S. Trade Balance with Its 20 FTA Partners: 2011 - 2013





Merchandise Trade




Services Trade**









Source (Merchandise Data): Data compiled by authors using the International Trade Administration’s TradeStats Express - National Trade Data, U.S. Department of Commerce, International Trade Administration, Office of Trade and Industry Information. (2014).

TradeStats Express - National Trade Data. Retrieved from

Source (Services Data): Data compiled by author using data from the Bureau of Economic Analysis, U.S. Department of Commerce, Bureau of Economic Analysis. (2013).

U.S. International Service –Private Services Trade by Area and Country 1992 - 2012. Retrieved from

*The United States has entered into FTAs with 20 countries: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Singapore, and South Korea.

**Service trade data available only for the following FTA partners: Canada, Mexico, Australia, Singapore, Israel, Korea and Chile. Other FTA partners are relatively small services trade partners and are lumped under “other countries.” The United States ran a trade surplus with these “other countries” of $27.4 billion in 2011 and $29.7 billion in 2012. It is likely that the U.S. trade surplus in services for FTA partners is underestimated by billions of dollars for both years. Finally, for simplicity’s sake, Colombia, Panama, and South Korea are included in these data even though the U.S. FTAs with those countries entered into force the following year.

About the Authors

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.

About the Author

Fellow, International Policy