Is The US Current Account Deficit Really Disappearing? [ANALYSIS]VW Staff
downward path as there is a more moderate increase in direct investment in the future with relocation projects to the US.
2 – Narrowing trade deficit
The narrowing trade deficit between 2006 and 2012 helped to reduce the current deficit by around two-thirds. The causes are both cyclical (dwindling domestic demand curbing a rise in imports) and structural (e.g. the recovery of market shares helps to boost the performance of exports (Chart 7).
This reduction is due to the shrinking non-oil deficit. While the oil deficit rose considerably between 2006 and 2008, it subsequently dropped sharply due to a combination of dwindling prices and volumes (Table 1, Chart 8).
The narrowing non-oil deficit is due to goods and services (USD 115 bn. reduction in the goods deficit between 2006 and 2012, and USD 123 bn. increase in the services surplus, Table 1). All components of the services balance have improved (travel, licenses, other services, etc.) (Chart 9), prompted by a slowdown in services imports, which partly reflects the weak performance of domestic demand, while exports became more dynamic after the 2008 crisis.
The improvement in non-oil goods since 2006 is essentially due to industrial supplies resuming a trade surplus since 2009. This surplus is partly due to the development of shale gas which not only boosts the natural gas balance but also in related sectors (petrochemicals, etc.). But we see virtually no improvement in the other sectors, whether for consumer goods, capital goods or the automotive sector (Chart 10).
While the development of shale gas/oil is helping to reduce the trade deficit, it is clearly only partly responsible. The lost market shares recovered by US companies (re-industrialization) and the reduction in energy dependence should continue to help narrow the trade deficit, although these are long to medium-term processes. Such structural improvements could also be tempered by the upturn in domestic demand and resulting recovery in imports, while world growth may remain weak for a considerable time to come.
US Current Account Deficit – Gains in market share
After heavy market share losses in both domestic and export markets (between end-1990s and 2006), there is a change in trend and US companies are now starting to improve their competitiveness.
- Shares in export markets have been increasing since 2006 after a sharp decline (-25%) between 2000 and 2006 (Charts 11 & 12). The dollar’s tendency to depreciate over the last decade may have had a positive impact with a delay on the trade balance, but it should be noted that the volume elasticity of exports and imports is low.
- US companies are also recovering some of the ground lost in their domestic markets with demand at home relying less and less on imports. The ratio of imports to domestic demand, which rose sharply between 1990 and 2006, is tending to level off and even decline slightly (Chart 13).
Improved competitiveness is partly linked to the deteriorating terms of trade (delayed effects of a depreciating dollar in the 2000s) as well as dwindling energy costs, progressive wage increases in emerging countries and the moderation of unit labor costs in the United States (Chart 14), a consequence of a distortion in the distribution of value added in favor of profits.
While this trend is good news for the economy, the market shares recovered are still limited at present.
US Current Account Deficit – Re-industrialization in the United States?
These recent developments are prompting discussions about the reindustrialization of the US economy. Is this the case?
There has been much talk about US deindustrialization over the last decade due to the heavy job losses in industry. While a considerable number of manufacturing jobs have been lost – almost 6 million between 2000 and 2009 (Chart 15) – this situation mainly reflects the gains in productivity across the sector (Chart 16).
Industry’s share of value added (volume) did not fall during this period (Chart 17), but we do see a clear shift in the US economy’s productive structure with:
- a sharp decline in the non-durable goods (textiles, toys, etc.) share of value added (Chart 18);
- a rise in the durable goods share, particularly for new technology products, while the share of traditional industries has tended to decline.
While we have therefore seen deindustrialization in certain sectors, this has been offset by an increase in value added in other industries, particularly new technologies.
US Current Account Deficit Recovery In Manufacturing Sector
After the 2008-2009 crisis, we see a recovery in the manufacturing sector: employment started to pick up and value added recovered within the sector. The durable goods share is back on the rise. Meanwhile, the new technologies share has tended to stagnate recently, possibly reflecting the slowdown in investment in new technologies. There has also been a sharp recovery in traditional investments although this is perhaps more a case of catching up after the crisis, with their share of GDP not yet recovering their pre-crisis levels (Charts 19 & 20).