Lower Oil Prices Decrease U.S. Trade Deficit

Brian Hicks

Written By Brian Hicks

Posted August 10, 2012

On Thursday, the Commerce Department revealed that the U.S. trade deficit gap went from $48 billion in May to $42.9 billion in June. This is the lowest in a year and a half.

The decrease is mainly an effect of crashing oil imports and rising exports. Even though net exports rose by just about 1 percent, that translated to a new high of $185 billion. This includes industrial equipment, automobiles, pharmaceuticals, and so on. Even the EU, which is caught in economic turmoil, saw its U.S. imports rise by 1.7 percent.

The main reason U.S. imports slowed down is the decrease in the average cost of imported oil to $100.13, or the largest such drop in over 3 years according to the Washington Post. This caused imports to drop to $227.9 billion, or a reduction of 1.5 percent.

Oil aside, imports of consumer electronics like televisions and computers also fell.

Trade deficit reduction is a very good thing, since it means that the U.S. is making more money off U.S.-made goods than it is losing money by buying foreign-made goods.

Moreover, this sort of drop could mean that the domestic economy performed better than anticipated in the second quarter, though we will have to wait until the government provides its second growth estimate later this August.

Against the concerns of anemic demand in international markets for U.S. exports voiced by economists, exports actually jumped up nearly 6 percent in the first half of 2012 from last year.

From the Washington Post:

The rise in exports “suggests that the easing in global demand and the strengthening in the dollar have yet to take a major toll on the U.S,” Paul Dales, an economist at Capital Economics, said in an email. “But we doubt this can last. Survey measures of export orders have already fallen sharply and it probably won’t be long before actual export growth slows.”

However, although the national deficit with the EU dropped by 20 percent or so, the situation with China did the reverse; it rose by 5.2 percent to $27.4 billion. One possible reason is that China experienced its own economic slowdown, which caused U.S. sales to that country to drop by 4.3 percent.

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