Trade Deficit: Down for the Year, but Up for the Month

The NYT notes the sharp drop in the trade deficit for calendar year 2009 compared to 2008. The falloff in the trade deficit was a striking feature of the downturn. Imports fell by almost than 25 percent year over year. Exports fell nearly as much in percentage terms, but since U.S. exports were only two-thirds as much as imports, this translated into a large improvement in the trade deficit.

However, most of the year's data was available before the December trade figures were released last week. The most striking development in the latest data has been the sharp rise in the trade deficit as the economy begins to recover. The December trade deficit of $40.2 billion is almost 60 percent higher than the low point of $25.8 billion in May. This suggests both that trade will be a substantial drag on the economy and that the economy remains on an unsustainable course as the Obama administration refuses to take the steps needed to address the over-valuation of the dollar, which is the cause of the trade deficit.

--Dean Baker

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