Nick Nasad
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Great Graphic: US Trade Deficit Over last 20 Years & Impact on USD

Today the US released trade balance data which showed a widening trade deficit for the month of December (Sasha wrote about the release here). The month to month changes in the trade balance can be volatile, so its more important to be able to take a step back and see the wider picture.

This graphic I came across does that pretty well as it shows how exports and imports have developed over the last 20 years, and how as a result of imports flat-lining over the last 4 years, the trade deficit as a percentage of exports has fallen from a peak of -55% to around -20% currently.

This is largely due to the fact that the US imports less energy as the shale oil/gas boom has meant US energy production has increased tremendously (a technical term) over the last 5 years. The widening trade deficit was a huge problem for the US in the 2000's as it meant a widening current account deficit for the US and the need for the US to trade more of its domestic assets (bonds, land, equities) to foreigners in exchange for goods. This also meant more USD flowing out, and a weaker exchange rate. With this dynamic going into reverse, it could set up the conditions for a slightly stronger Dollar, other things held equal.

We can see that here in a graph of the broad trade-weighted dollar index since 1995.