Unexpectedly Intriguing!
August 23, 2006

Yesterday, Political Calculations looked at the value of U.S. imports and exports from January 1992 through June 2006, we noted that the U.S. trade deficit didn't begin significantly widening until mid-1997. Today, we thought we'd take a closer look to pin down exactly where it began.

A trade deficit, or a trade surplus for that matter, is defined as the difference between the value of a country's imports and exports. A country has a trade deficit if the value of the goods and services it imports is greater than those of what it exports. Conversely, a country has a trade surplus if the collective value of what it imports from other countries is less than the collective value of what it exports to other countries.

The weakness of this approach is that it doesn't provide any real context to how significant a nation's trade deficit or surplus may be in terms of its trade. For example, a trade deficit of one-trillion dollars could either be really huge or really small, depending upon the actual volume of a nation's trade.

Another way to easily evaluate the balance of a nation's trade is to look at the ratio of the value of what it exports to the value of what it imports. Expressed as a percentage, this ratio provides a quick measure of the degree to which a nation is in balance. Here, a nation's trade is in balance if its trade balance ratio is 100%, which occurs when the value of what it imports is equal to the value of what it exports. A value above 100% indicates not only that there is a trade surplus, and a value below 100% indicates that there is a trade deficit.

The real advantage of using this trade balance ratio is that the percentage values provide a good indication of to what degree a nation's trade is either in balance or out of balance. The greater the difference from 100%, the more unbalanced is that nation's trade.

So, that's what we did for U.S. trade data from January 1992 through June 2006. Our chart summarizing our results is below:

This chart clearly shows that the U.S. trade deficit was largely stable as a percentage of exports to imports during the first four and a half years of the Clinton administration (January 1993 - July 1997), but began rapidly widening thereafter. In fact the degree of the difference between these first four and half years (a one percentage point drop) to the Clinton administration's last three and a half years (an additional 20 percentage point drop) indicates that a significant change in how the U.S. government managed its trade policy during this time must have occurred.

The problem is, we can't find the smoking gun for such a sea change in U.S. trade policy that would coincide with this massive widening of the U.S. trade deficit. The most significant trade agreement of the Clinton administration, the North American Free Trade Agreement (NAFTA), took effect in January 1994, with little apparent effect on the U.S. trade balance. Meanwhile, the timeline of major trade agreements is silent during this period.

Since then, the trade deficit has widened during the Bush administration, but by less than a third of the change during the Clinton administration. The lag in U.S. aerospace exports following the September 11, 2001 terrorist attacks, combined with the sharply higher value of oil imports during this period largely explains this widening. Again, where's a similar explanation for the opening of this trade gap during the Clinton administration?

What did Bill Clinton do?


About Political Calculations

blog advertising
is good for you

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

Recent Posts


This year, we'll be experimenting with a number of apps to bring more of a current events focus to Political Calculations - we're test driving the app(s) below!

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

Visitors since December 6, 2004:

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button


The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links
Charities We Support
Recommended Reading
Recommended Viewing
Recently Shopped

Seeking Alpha Certified

Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.