4.6: Trade

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Learning Objectives

What do we trade with other nations?

The United States is a major trading nation. Figure 4.50 represents total U.S. imports and exports, including foreign investments and earnings (e.g., earnings from U.S.-owned foreign assets). As is clear from this figure, the net trade surplus ended in the 1970s, and the United States now runs substantial trade deficits, around 4% of the GDP. In addition, trade is increasingly important in the economy.

Figure 4.50 Total imports and exports as a proportion of GDP

Figure 4.51 shows the total trade in goods and services, as a percentage of U.S. GDP. These figures are surprisingly similar, which show that investments and earnings from investment are roughly balanced—the United States invests abroad to a similar extent as foreigners invest in the United States.

Figure 4.51 U.S. trade in goods and services

Figure 4.52 shows the earnings on U.S. assets abroad and the payments from U.S.-based assets owned by foreigners. These forms of exchange are known as **capital accounts**. These accounts are roughly in balance, while the United States used to earn about 1% of GDP from its ownership of foreign assets.

Figure 4.52 Income and payments (% GDP)

Table 4.2 Top U.S. trading partners and trade volumes ($ billions)
Rank	Country	Exports Year-to-Date	Imports Year-to-Date	Total	Percent
	All Countries	533.6	946.6	1,480.2	100.0%
	Top 15 Countries	400.7	715.4	1,116.2	75.4%
1	Canada	123.1	167.8	290.9	19.7%
2	Mexico	71.8	101.3	173.1	11.7%
3	China	22.7	121.5	144.2	9.7%
4	Japan	36.0	85.1	121.0	8.2%
5	Germany	20.4	50.3	70.8	4.8%
6	United Kingdom	23.9	30.3	54.2	3.7%
7	Korea, South	17.5	29.6	47.1	3.2%
8	Taiwan	14.0	22.6	36.5	2.5%
9	France	13.4	20.0	33.4	2.3%
10	Italy	6.9	18.6	25.5	1.7%
11	Malaysia	7.2	18.0	25.2	1.7%
12	Ireland	5.2	19.3	24.5	1.7%
13	Singapore	13.6	10.1	23.7	1.6%
14	Netherlands	15.7	7.9	23.6	1.6%
15	Brazil	9.3	13.2	22.5	1.5%

Who does the United States trade with? Table 4.2 details the top 15 trading partners and the share of trade. The United States and Canada remain the top trading countries of all pairs of countries. Trade with Mexico has grown substantially since the enactment of the 1994 North American Free Trade Act (NAFTA), which extended the earlier U.S.–Canada agreement to include Mexico, and Mexico is the second largest trading partner of the United States. Together, the top 15 account for three quarters of U.S. foreign trade.

Key Takeaways

The United States is a major trading nation, buying about 16% of GDP and selling about 12%, with a 4% trade deficit. Income from investments abroad is roughly balanced with foreign earnings from U.S. investments; these are known as the capital accounts.
The United States and Canada remain the top trading countries of all pairs of countries. Mexico is the second largest trading partner of the United States. China and Japan are third and fourth. Together, the top 15 account for three quarters of U.S. international trade.