The trade deficit has turned very oily lately

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We all know the U.S. is running a big trade deficit. Has been for years. We also know that the U.S. imports a lot of oil, the price of which has been going up staggeringly fast lately. But how much of a factor is oil in the trade deficit?

A really big factor, it turns out. Oil imports now account for most of the U.S. trade deficit, which was running at an annualized pace of $717 billion, or 5.05% of GDP, in the first quarter of 2008. Imports of “petroleum and products” accounted for $449 billion of that. Meanwhile, as the chart below shows, the rest of the U.S. trade picture has improved sharply:

Graphic by Feilding Cage/

What does this mean? Well, first, that the U.S. economy remains globally competitive and may even be headed for a trade surplus ex-oil within the next few years, barring another investment bubble like houses or tech stocks. And second, that our addiction to oil is costing us big-time. Whether that cost is something we really ought to worry about depends on whether the current high oil price is the artifact of an investment bubble or a sign of things to come. Which is an entirely different topic.