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To help you understand what is going on in the trade sector and how it impacts the economy, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…
Tariffs and trade policy make many headlines these days. But less is written about the current state of U.S. trade — the size and nature of our trade deficit, what drives it, what things the U.S. imports (or exports) a lot of, what we do and don’t build.
Let’s take a look at the scale of U.S. imports and exports, where domestic manufacturing is growing, and whether more can be made here. The political debate over the president’s trade policies is fierce. Much less is said about how things stand now. You may find the following facts and outlooks useful.
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Size of the trade deficit
Last year’s trade deficit totaled $918 billion, worth about 3% of U.S. GDP. That’s the value of exports minus imports, for both goods and services. The U.S. has run an annual trade deficit, of varying sizes, every year for 50 years. The U.S. runs a large deficit between the goods it imports and exports. When it comes to services, America is a net exporter, running a surplus of almost $300 billion last year. (More on the burgeoning services surplus below.)
Top manufactured exports
America’s consumption of imported goods leads to a common complaint: That the country doesn’t make much here anymore. Consumers see items labeled “Made in China” and understandably think U.S. factory output has fallen. Yet the U.S. is the second-largest manufacturer, with China first. Production has shifted away from lower-cost consumer products in favor of capital equipment, which consumers seldom see. Our domestic industrial output is nearly as large as all of Europe’s combined. Manufacturing has fallen to just 10% of U.S. GDP, but that is because service industries have grown so rapidly in recent decades.
Despite our trade deficit, we are the largest exporter after China, due to our mix of high-value manufacturing and abundant natural resources. Some of our top manufactured exports: Industrial and farm equipment. Engines and generators. Electrical gear. Instruments used by many industries. Computers and accessories. Telecom components. Aircraft. Pharmaceuticals.
Oil and gas
The domestic boom in oil and gas has unleashed a gusher of exports of petroleum. 20 years ago, the U.S. imported a net 13 million barrels per day. Now, we export 3 million bpd more than we import. Similarly, with natural gas, the U.S. is now the world’s largest exporter of liquefied natural gas. New terminals to export even more are being built, which could up foreign LNG sales by a third.
Service industry
The digital age has let the U.S. play to one of its strengths: Services. Services exports hit $1.1 trillion last year, up from $769 billion in 2015. Most of that growth has been driven by the internet’s ability to distribute services around the world, especially in IT, finance and insurance. Think software licenses, cloud computing and data storage, along with industrial services made possible by the internet, such as precise logistics and licensing of U.S.-made equipment. U.S. manufacturers are the No. 2 exporter of these “digitally enabled” services.
Agriculture
One traditional export strength that not everyone realizes is slipping: Agriculture. Long the world’s chief source of exported food and feeds, the U.S. has begun running trade deficits in farm goods. Why? The strong dollar, stiff competition from Brazil and rising consumption of things not grown here.
Areas of growth
Let’s turn to some sectors where the U.S. has room to make and export more.
Chemicals
The U.S. is the world’s second-largest producer of chemicals by volume, generating 250 million tons last year, compared with 1.3 billion tons for No. 1 China. America’s energy abundance provides it with a key advantage, since fossil fuels, especially natural gas, are used as both energy sources and feedstocks.
Chemicals are one of the few goods sectors where the U.S. runs a trade surplus, which reached an estimated $25.7 billion last year. That trade surplus is also expected to persist, though the current upheaval in U.S. trade relations muddies that outlook. But for now, chemicals account for around 10% of U.S. goods exports. Top products: Pharma preparations. Plastic materials and resins. Petrochemicals. Ethyl alcohol.
Microchips
High-tech fields hold even more potential to fuel domestic manufacturing. Recent investments in new chipmaking capacity are enormous. After the U.S. saw its share of global chipmaking fall from 37% in 1990 to 12% today, a rebound is underway, driven by pandemic supply chain disruptions and funding from Congress. As of last year, there were 90 new chip projects in development, backed by $450 billion in investments (including about $50 billion from the 2022 CHIPS Act). New plants in Arizona by TSMC and Intel are either up and running or coming online soon to produce the cutting-edge chips that historically have been made in Taiwan. Intel is also considering huge manufacturing investments in Ohio, while Micron is working on new memory chip plants in Idaho and N.Y.
As a result of all this, U.S. chipmaking capacity is on track to triple by 2032, with an emphasis on domestic production of the most advanced chip designs. There are challenges, admittedly. Hiring enough skilled technicians will be hard. And chipmaking plants require tons of electricity. The U.S. grid is already coming under capacity strains.
Aerospace
Then there’s aerospace, which is growing by leaps and bounds as firms race to deliver high-speed internet and other services from huge arrays of small satellites. SpaceX is the dominant player for now, due to its Starlink internet service. It has a massive, just-expanded facility in Texas to build millions of satellite dishes, it builds thousands of satellites in Redmond, Washington, and it makes rockets in Texas and California. It is breaking ground on a new factory in Florida this year to build Starship, the largest rocket ever. Meanwhile, Amazon is gearing up to challenge SpaceX, with plans to build thousands of satellites and millions of satellite-internet antennas.
Defense
Related to aerospace, the U.S. remains the world’s premier defense exporter, dominating the global trade in weaponry, with Russia, China and France far behind. A silver lining of the actual and potential conflicts roiling the world is steady demand for military hardware for the foreseeable future. The U.S. doesn’t lead in every type of weapon, but many of our systems are recognized as world-class. The big challenge will be keeping up with demand from both our military and friendly foreign militaries.
Challenges: The need for skilled workers
One thing these specialized, high-tech industries will all need to grow: High-skilled workers, from engineers to tradespeople and machine operators. It’s hard to imagine the return of factories employing masses of assembly line workers. But the need for specialized, educated workers is clear. Worries about labor shortages are already cropping up and will worsen without enough young people getting degrees in STEM fields or going into skilled trades. Fortunately, interest among high schoolers in vocational training programs appears to be picking up. The president’s proposal to boost skilled-trade apprenticeship programs could also help if it gets implemented.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
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