US Closing Trade Deficit with Better Oil Numbers
Ignore the doomsayers; the dreaded export gap is getting slimmer and oil is leading the way, Daniel Gross writes.
For years, geopolitical analysts have warned of the twin deficits that threaten America. There’s the federal budget deficit, which gobbles up resources and forces the U.S. to borrow ever-greater amounts of money from China. And there’s the trade deficit, which means Americans are sending their hard-earned dollars to buy stuff (plastic products, clothes, oil) from unfriendly regimes. These twin deficits enrich our frenemies and impoverish present and future Americans. The good news! Both of these mortal threats are declining.
For the last several months, we’ve been banging on about the Golden Age of Deficit Reduction. As the expansion chugs toward its four-year anniversary, tax revenues are rising and federal spending is falling. The deficit for the current fiscal year is now projected to come in at about $642 billion, down 41 percent from the $1.089 trillion in fiscal 2012. By now, it’s not exactly news.
But data released yesterday shows the U.S. is also making some progress on the trade front—especially when it comes to shipping dollars to the Middle East, Venezuela, and other hostile climates in exchange for oil. Here are the numbers. In April, the U.S. exported $187.4 billion of goods and services and imported $227.7 billion of goods and services, leaving a trade deficit of $40.3 billion. That’s a lot. But the trade deficit has been falling in the past couple of years. It fell 4 percent in 2012 from 2011. And through the first four months of 2013, the trade deficit, at $164 billion, is 13.5 percent smaller than it was in the first four months of 2012. In real terms, and as a percentage of gross domestic product, the trade deficit is falling.
Why? First, exports are rising. Even though America tends to get down on itself, the U.S. is in fact a global export powerhouse. The megatrend of continuing global growth has translated into rising demand for American-made planes and grains, and for American hotel and dormitory rooms. U.S. exports rose 4.6 percent in 2012 to a record $2.2 trillion. Through the first four months of 2013, even with the global economy slowing, exports are still up 2 percent.
That’s one side. The other side, of course, is imports. The U.S. doesn’t so much have a trade problem as it has a China-and-oil trade problem. We have a big trade deficit because we import a lot of stuff from China and a lot of oil to feed our transportation and industrial complexes. In 2011 the U.S. imported $250 billion of petroleum products and exported $68 billion of petroleum products, leaving a deficit of $184 billion in that sector.
But something has happened in the past few years. There has been a quiet, unappreciated revolution in energy production and consumption. Domestic energy production, especially oil production, is booming. Thanks to developments like the Bakken Shale in North Dakota and the use of fracking to get at oil all over the country, the U.S. in 2012 produced 28 percent more oil than it did in 2007, and more than it has in any year since 1995.
If demand was simply staying constant, we’d have a lot less use for imported oil. But domestic demand for petroleum, and for gasoline in particular, is falling. We’ve written before about the revolution in efficiency for automobiles. Beyond marketing hybrids and electric cars, automakers have been making a concerted and successful effort to boost the efficiency of new vehicles. And so as the American auto fleet slowly turns over, it gets more efficient. According to researchers at the University of Michigan, the average mileage of the fleet sold in May was 24.8 miles per gallon, a modern-day record, and up more than 20 percent from late 2008. Meanwhile, school buses, trucking fleets, and delivery vehicles are being converted to run on compressed natural gas. And with every day, smart, stylish people are seeking nonpetroleum alternatives, from trains to bike sharing.
The upshot is that the U.S., that gas-guzzling, inefficient energy slob, is cutting its oil-related imports, reducing its oil-related consumption, and boosting its oil-related exports. And that means our energy trade deficit is shrinking. In April, the value of petroleum products imported was $17.6 billion, down 11 percent from $19.8 billion in April 2012. The value of petroleum products exported was $6.1 billion, up 6 percent from $5.77 billion in April 2012. The petroleum trade deficit in April was thus $11.4 billion, down 17 percent from April 2012. Through the first four months, petroleum-related imports were $72.3 billion, down 8.3 percent from $78.8 billion in the first four months of April 2012, while exports were up 5.2 percent to $23.9 billion. The result: the trade deficit in petroleum products so far this year is $48.34 billion, down about 13 percent from the first four months of 2012 and down 25 percent from the first four months of 2011.
Should these trends continue for the rest of the year, the petroleum deficit will be about $137 billion in 2013. That’s still a lot. But we’re seeing a real reduction. It means American businesses and consumers will be spending $20 billion less on imported oil in 2013 than they did in 2012 (and $40 billion less than they did in 2011), leaving them with more cash to spend on domestically produced energy, or on other goods and services.