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Vol. 31, No. 4

In this article, the authors present updated trade elasticities—measures of how much imports and exports change in response to income and price changes—for the U.S. and six other industrialized countries, collectively known as the Group of Seven. They find that the imports and exports of these countries are slightly more responsive to changes in a country's total income over a period that ends in 2006, compared with a period that ends in 1994.

Last Updated: 11/07/2007

Understanding the Evolution of Trade Deficits: Trade Elasticities of Industrialized Countries

Leland Crane, Meredith Crowley, Saad Quayyum

In 2006, Americans bought $1,928 billion of goods and services produced in foreign countries. In the same year, American sales of goods and services to foreigners amounted to only $1,304 billion. The difference between American exports and imports of $624 billion is known as the trade deficit. When this number is positive—that is, when the U.S. sells more to foreign countries than it buys—it is called a trade surplus. More generally, the difference between the value of a country’s exports and imports is known as the trade balance. Over the past several years, the U.S. trade deficit has attracted a great deal of attention in the popular press and among policymakers in Washington, DC. Why is there so much interest in the trade deficit?