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Milton Ezrati of Lord AbbettCould it be that the U.S. trade balance is headed into the black? At first blush, the prospect seems dubious. This country’s trade deficit has drifted deeper into the red for so many decades now that few that can even conceive of lasting improvement. Even so, that is what seems to be in store. The gap between what this country buys from the world and what it sells has already narrowed considerably and shows every indication of continuing to do so, because of currency shifts and more fundamentally because of alterations in China’s and Japan’s economies and the remarkable turn in the mix of global energy production.         

The old, depressing trade patterns had persisted for so long they seemed immutable. They remain an underlying assumption in just about all economic, financial and currency analyses. And such a default to deficit is understandable. The U.S. trade position deteriorated, almost uninterrupted, for better than 60 years. In 1947, the United States sold the world $10.1 billion more in manufactured goods, minerals and other physical products than it imported, a surplus of more than 4% of that year’s gross domestic product (GDP). By 1960, the positive gap had shrunk to $5.3 billion, a mere 1% of that year’s GDP. The balance slipped firmly into the red in 1974. By 1984, the deficit had widened to almost $111 billion, 2.8% of GDP, and by 1994, it averaged almost $685 billion, fully 5.8% of GDP. By 2006, it stood at $860 billion, a whopping 6.4% of GDP. It was not a pretty nor encouraging picture.

But since then, this well-established trend has begun to turn. By the end of 2009, the deficit between goods exports and imports had shrunk to $586 billion, a much more manageable 4.1% of GDP. The gap widened slightly in 2011, reapproaching 5% of GDP, but then began to shrink again. This year’s third quarter, the latest period for which such data exist, saw the gap narrow back down to 4.5% of GDP. Monthly data through October, the latest month for which statistics are available, show goods exports up almost 5% so far this year, while imports have risen only 3.4%. The trade imbalance, accordingly, has shrunk by over $6 billion, or at an annualized rate of more than 20%, since last December.


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