U.S. trade deficit hits record high in 2020: The Biden administration must prioritize rebuilding domestic manufacturing

The U.S. Census Bureau reported recently that the U.S. goods trade deficit reached a record of $915.8 billion in 2020, an increase of $51.5 billion (6.0%). The broader goods and services deficit reached $678.7 billion in 2020, an increase of $101.9 billion (17.7%). The U.S. goods trade deficit in 2020 was the largest on record, and the goods and services deficit was the largest since 2008.

The rapid growth of U.S. trade deficits reflects the combined effects of the COVID-19 crisis, which caused U.S. exports to fall by more ($217.7 billion) than imports ($166.2 billion), and by the persistent failure of U.S. trade and exchange rate policies over the past two decades. The single most important cause of large and growing trade deficits is persistent overvaluation of the U.S. dollar, which makes imports artificially cheap and U.S. exports less competitive.

The U.S. goods trade deficit is increasingly dominated by trade in manufactured products, as shown in the figure below. The manufacturing trade deficit reached record highs of $897.7 billion—98% of the total U.S. goods trade deficit—and 4.3% of U.S. GDP in 2020. Primarily due to these rapidly growing manufacturing trade deficits, the U.S. lost nearly 5 million manufacturing jobs and 91,000 manufacturing plants between 1997 and 2018 alone, and an additional 582,000 manufacturing jobs in 2020.

Figure A

Growing U.S. goods trade deficits, 1997–2020

U.S. goods trade deficit Manufacturing trade deficit
1997 $198.43 $130.69
1998 $248.22 $186.55
1999 $337.07 $259.03
2000 $446.78 $317.24
2001 $422.37 $304.11
2002 $475.25 $362.64
2003 $541.64 $403.09
2004 $664.77 $487.44
2005 $782.80 $541.40
2006 $837.29 $558.54
2007 $821.20 $532.08
2008 $832.49 $456.07
2009 $509.69 $319.29
2010 $648.67 $412.65
2011 $741.00 $440.55
2012 $741.12 $467.74
2013 $700.54 $458.81
2014 $749.92 $526.90
2015 $761.87 $629.78
2016 $749.80 $647.32
2017 $799.34 $695.52
2018 $880.30 $779.48
2019 $864.33 $793.36
2020 $915.80 $897.71
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Source: EPI analysis of Census Bureau and the USITC trade data.

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Growing trade deficits with China are the largest single cause of growing manufacturing trade deficits and jobs losses. Between 2001, when China entered the World Trade Organization (WTO), and 2018, growing U.S.–China trade deficits eliminated 3.7 million total U.S. jobs, including 2.8 million jobs lost in manufacturing alone. Although the U.S. trade deficit with China fell by $34.4 million (10.0%) in 2020, China’s total trade surplus with the world increased 27% in 2020 to $535 billion, driven by surging exports of medical supplies and electronic goods. U.S. trade deficits with Hong Kong, Korea, Malaysia, Indonesia, Singapore, Taiwan, and Australia, as well as Mexico and Switzerland all increased significantly in 2020. There is growing evidence that China is evading U.S. trade restrictions by shipping products through other countries (e.g. tariff circumvention).

Growing U.S. trade deficits over the past two decades, which reached record levels in 2020, have decimated U.S. manufacturing. The United States can rebuild domestic manufacturing by rebalancing U.S. trade, and by implementing the Biden administration proposal for a $2 trillion, 4-year program for rebuilding U.S. infrastructure and investing in clean energy and energy efficiency improvements.