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

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.

Additional Resources

• 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?