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Breaking Down the U.S. Trade Balance

Tuesday, May 28, 2019

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

In this video—taken from a recent Dialogue with the Fed event—Senior Economist Paulina Restrepo-Echavarria discusses how this shift has affected the U.S.’s trade balance with the rest of the world.

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.

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