December trade

We now know the trade deficit hit $618 billion for the year (5.35% of GDP)

Exports: $1146 billion

Imports: $1764 billionThe good news in December was the uptick in exports; the bad news was that the fall in oil imports did not produce a fall in overall imports -- non-oil import growth continues to be strong.

Imports from China ($197 billion) exceeded imports of petroleum and related products ($175.5 billion)

That implies a current account deficit of $664 billion, 5.75% of GDP.

What about 2005?

First, assume imports and exports stay at their q4 levels through the entire year. Exports rise to $1181b; imports to $1868b, producing a deficit of $687 billion (5.6% of GDP). That produces import growth of 6%, export growth of about 3%.

Second, let’s assume that non-oil imports and exports grow at their 2004 annual rate, i.e. exports grow a bit faster than 12%, and non-oil imports grow a bit less than 15%. Further assume that oil import volumes grow by 5%, and oil averages $45 a barrel rather than $41 a barrel, increasing the US oil import bill by about $20b. That implies exports of $1287b, imports of $2020b, and an overall trade balance of -733 billion (6% of GDP).

Exports recently have been growing a rate closer to 10%, and non-oil imports should slow somewhat, so just projecting out 2004 growth rates is probably misleading. It seems to me more likely that, at least at the beginning of 2005, export growth may slow more than non-oil import growth, widening the overall deficit.

But barring a major change in US economic conditions, or a big fall in oil, there is little doubt the trade deficit will keep on growing in 2005.