The U.S. trade deficit grew to $497.8 billion in 2010, but that number is actually somewhat deceptive. In fact, the nation's manufacturing sector posted significant continued export gains last year. These were obscured, however, by two longstanding problems: America's imported oil bill and its large trade deficit with China.

Aided by rapid growth in emerging markets -- which need U.S. industrial goods to develop their business and residential infrastructures -- the nation's manufacturing export uptrend will continue in 2011, and probably well beyond. That could eventually create a trade surplus, if the U.S. can decrease its imported oil bill and come to a more even trading relationship with China.

Still Importing Too Much Oil

The petroleum deficit, which jumped 29.6% to $256.9 billion in 2010, reflects America's longstanding high per-capita consumption of both heating oil and gasoline, and the nation's inability or unwillingness to move assertively toward an alternative transportation fuel.

Given the strong probability that oil's price will remain high -- well above $70 per barrel -- the imported petroleum bill is likely to continue to be a drag on the trade numbers, barring a breakthrough in energy technology or a sudden and fervent conservation movement among U.S. motorists.

Of 2010's $256.9 billion petroleum deficit, the net bill for crude oil -- which is used to make gasoline -- totaled $250.7 billion, up 33.4% from 2009. The jump was largely price-based: The volume of oil imported rose only slightly, by 1.9% to an average of 9.25 million barrels per day (bpd). The average price per barrel, though, surged 31.1% to $74.66 per barrel in 2010 from $56.93 in 2009.

To put that in perspective, in 2010 crude oil imports accounted for $20.9 billion a month out of an average monthly trade deficit of $41.5 billion. If the U.S. ended its dependence on imported oil, the trade deficit would be cut in half.

China Still Benefits from a Fixed Yuan

America's trade imbalance with emerging market giant China represents its other key weakness in international commerce.

In 2010, the U.S. trade deficit with China jumped to a record $273.1 billion, up 20.4% from $226.9 billion in 2009.

The red ink with China wasn't due to a lack of growth in U.S. exports to the world's most populous nation: They leaped an impressive 32.2% to $91.9 billion from $69.5 billion in 2009. But U.S. exports to China started from too low a base to offset the 23.1% increase in U.S. imports from China, up $68.7 billion to $364.9 billion. Even out the deficit with China, and the U.S. monthly trade deficit would shrink by another $22.8 billion per month.

At least some part of the China-U.S. imbalance can be attributed to the artificially undervalued yuan, which China holds in a thin, fixed band, presently set at about 6.6 yuan to the dollar. This boosts China's exports by keeping its goods priced lower than they would be if the currency's value was determined by the free market.

Add the China deficit and the oil deficit together, and it's clear: If the U.S. could solve those two problems, the nation would be running a roughly $3 billion monthly trade surplus, instead of the current monthly average deficit of $41.5 billion.

An Industrial Export Rebound

The real story in the international trade arena is the U.S. manufacturing sector's ongoing impressive export performance.

Led by increases in industrial equipment, capital goods, civilian aircraft, supplies and autos, exports of U.S. goods increased by by 20.8%, from $1.07 trillion in 2009 to $1.29 trillion in 2010. Products such as electric utility generators produced by General Electric (GE), commercial airplanes manufactured by Boeing (BA), and tractors and other agriculture equipment produced by Caterpillar (CAT) and Deere (DE), among other heavy-industrial equipment, were at the forefront of the uptrend.

After bottoming out with a monthly total of $84.2 billion in January 2008, during the financial crisis' acute stage, goods exports have risen essentially continuously for two years, and totaled $116.6 billion in December 2010. Given strong GDP growth in the industrial goods purchasing nations of China, India and Brazil, among others, the rising U.S. manufacturing export trend will extend through 2011, and probably for considerably longer.

It's also worth noting that the strong international performance by U.S. manufacturers occurred in advance of the full implementation of President Obama's National Export Initiative, which is aimed at doubling U.S. exports by the end of 2014. Doubling U.S. exports in three years is a long shot, but the initiative should provide an additional boost to exports, due to the program's increased marketing of U.S. goods and services in foreign countries, among other benefits.

Two Challenges Worth Conquering

Of course, the twin impediments preventing the U.S. from reaching a trade surplus won't be easy to correct.

Regarding China, it will take continued international pressure, not just efforts by the U.S., to encourage Beijing to let its currency appreciate faster. Naturally, China takes a different view of its fixed-band yuan exchange and the trade situation, arguing that it needs to keep the yuan at a low value to protect its embryonic industries. Although Beijing has indicated it plans to let the yuan appreciate slowly, policymakers in Beijing suggest that the best way for the U.S. to reduce its trade deficit with China is for the U.S. to consume less and save more.

Concerning imported oil, the efficiency of America's automotive fleet has improved significantly over the past 30 years, but additional gains from hybrid vehicle technology, engine improvements, lighter materials and the increased use of natural gas, as well as an increase in the use of mass transit, will be needed before U.S. oil imports decline in a sustained way.

These are daunting tasks, but the benefits of success are more than worth the effort. Every month, the trade deficit sends billions of dollars in U.S. wealth abroad. A trade surplus would keep that money at home, increasing the pool of funds available for investment and business expansion.

Half-a-trillion extra dollars a year available for investment and business expansion wouldn't guarantee a thriving economy with expanding job opportunities -- but it would be a good place to start.

Increase your money and finance knowledge from home

How Financial Planners go Grocery Shopping

Learn to shop smart and save.

View Course »

How to Buy a Car

How to get the best deal and buy a car with confidence.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:
Kay Arnold

last year US refineries shipped117 million gallons of gasoline,diesel & jet fuel PER DAY out of our country.
Source of this info---Jim Hightower's publication The Lowdown" Feb.2012

February 26 2012 at 12:07 AM Report abuse rate up rate down Reply

We have oil in the US, does anybody know how much we export?

February 17 2011 at 11:55 AM Report abuse rate up rate down Reply

In the third paragraphs of this article, the author lost me. That is because his assumption is politcal and not factural or realistic any time in my life time. Alternatve energy is not going to replace petroleum in the next 30 years. The only way to balance the trade surplus is to take advantage of the petroleum we have by drilling and mining it.We have more than enough for 100 years for our own consumption to be independent.
Green is great but dollars run the economy.

February 17 2011 at 8:57 AM Report abuse rate up rate down Reply

We have had trade deficits since the 60s.
I disagree with the article with respect to how we could correct our trade deficit with respect to oil. As long as alternative energy transportation is not cost competitive with gas and diesel powered transportation, businesses and consumers are not going to purchase them; so we are going to use oil. I think we might want to allow companies to tap the untouched domestic oil fields, so we can reduce our reliance on imported oil.
And, what's more, using tax dollars to subsidize alternative fuel and alternative energy businesses to artificially lower the cost to make it competitive with oil is not something that I support, although I do support continuing research and development. The businesses engaging in alternative fuels and energy need to be able to compete on their own.

February 17 2011 at 7:02 AM Report abuse rate up rate down Reply

It looks like the best way to reduce our balance of trade deficit will be in agriculture with our grains. It seems that we import everything else.

February 17 2011 at 3:57 AM Report abuse +1 rate up rate down Reply

So, we start exporting American students, resulting in a trade surplus, AND we end up dumbing down our rivals, making us instantly more competitive! Simple.

February 16 2011 at 11:01 PM Report abuse rate up rate down Reply

This article should be read by every American that enters a Toyota, Honda, Mitsubishi, Hyundai, Kia,Nissan Susuki,Isuzu, BMW, Mercedes,Porshe, Volvo, Saab,
or any other foreign car dealership looking to purchase a foreign car. Lets not stop there. Lets include foreign appliance manufacturers as well.
We dumb Americans are only too willing to send our dollars overseas by purchasing foreign products over domestic manufactured goods. Then we complain when we or a friend or family member loses their job. All we need to do is look in our garage or what washing their clothes to see why. And don't give my that crap about goods made in America by Foreign companies. The profits go over seas and does nothing to help America or our American society.

February 16 2011 at 10:14 PM Report abuse +5 rate up rate down Reply
2 replies to capenv's comment

Wait a minute. You might want to check the sticker to see where those vehicles are "manufactured" before you brand them as foreign... Some of the foreign auto models are assembled in the US and have enough content to be branded as Made in USA.

February 17 2011 at 6:49 AM Report abuse rate up rate down Reply

Hey sfamilyent, you don't get it. Even if a product is assembled in America by a foreign company the profits go to the foreign companies home country which isn't America. We're bleeding hundreds of millions of dollars of American wealth that's being sucked up by foreign companies benefiting foreign contries. Does nothing but give a guy in Ohio a $12.00/hr job assembling Honda's from parts sent here from Japan.

February 17 2011 at 11:44 AM Report abuse rate up rate down Reply

Sorry Exigent,

NAFTA didn't start the ball rolling? I own a small business don't beleive everything you read.

February 16 2011 at 10:03 PM Report abuse rate up rate down Reply

The Bottom Line here folks is our As* is getting handed to us and I don't see either party upset or doing anything to change the 2 Factors in this article:

1. Our Oil taps have been turned off with no refineries being built. No Nuclear plants being built. Detroit isn't listening either other then when they need tax payer dollars to bail their AS*es out.

2. Manufacturing jobs have been leaving since 1995 and they aren't coming back. Middle Class took it on the chin here.

No matter how you slice it or put a spin on it Wall Street still controls the table folks and the house always wins. How can an economy be based on Bets?

February 16 2011 at 9:30 PM Report abuse +1 rate up rate down Reply

Our socialist public educational system has indoctrinated our children into believing capitalism and freedom is bad and socialism is good. If Socialism is so good, why does the long time socialist government of Mexico boast of being the #1 producer of silver, plenty of oil, and the richest man in the world, yet 99% of their people are in the poverty level making an average of less than 6 dollars a day. Corruption is rampant. The evil, ultra rich see Mexico and want to implement socialism here, where they can have all of the wealth and power and the middle class will now be among the poor. That is what their Demoncrat puppets in the white house and senate are doing to us.

February 16 2011 at 6:31 PM Report abuse +2 rate up rate down Reply