Breaking Down the U.S. Trade Balance
As an economy evolves and develops, it moves among three stages:
- In the first stage, the economy relies mainly on producing agricultural goods.
- In the second stage, it shifts away from agricultural goods to manufacturing goods.
- In the third stage, the economy moves from manufacturing goods to providing services
Since the U.S. has entered the third stage of its development, Restrepo-Echavarria says it should not be a surprise that the U.S. would have to import more goods than it exports, as its focus is now more on services. Relatedly, the U.S. has gone from a net importer of services to a net exporter of services over the past several decades.
- Dialogue with the Fed: Go with the Flows — The Balancing Act of International Trade
- On the Economy: Is Value-Added Trade a Better Measure of Global Trade?
- On the Economy: What’s Behind the U.S. Trade Deficit?