The US appeared to get a valentine this morning, as the BEA trade data showed a big drop of $4.3 billion—down to $58.8 billion in December from November’s $63.1 billion in November. The Wall Street Journal noted that "the December deficit was smaller than expected by Wall Street. Economists surveyed by Dow Jones Newswires estimated a $61.70 billion shortfall." For the year, the deficit is down $46.9 billion from 2006.
However, on closer inspection, this rose still has some thorns. Even with the drop, the trade deficit is running higher than October (although less than the monthly average for 2006). The dollar amount of oil imports continued to grow, even though the volume decreased. The deficit with China also continued to grow.
Our intangible trade balance in December grew slightly by $38 million to $10.25 billion as exports increased faster than imports (see chart 1 below). Overall trade in intangibles continued to grow, as every category—imports and exports, royalties and business services—grew. (Note: the BEA reports that “services” exports decreased. This is because the definition of “services” includes travel, tourism and transfers under U.S. military sales contracts, which we excluded from the definition of intangibles – see below.)
Data for the entire year of 2007 shows strong growth in intangibles trade (see chart 2 below). Our surplus rose by over $14 billion to $121.3 billion. Again, every category—imports and exports, royalties and business services—grew. Total trade in intangible grew by $47.7 billion to $440.9 billion. The percentage of intangible trade in our total international trade has been increasing—although it dropped and recovered during this decade.
The deficit in Advanced Technology Products took a dramatic drop in December to “only” $2.8 billion, as imports declined dramatically and exports grew. The rise in exports and the drop in imports was mainly in the information and communications technology (ICT) area, with smaller declines in imports and rises in exports in life sciences and opto-electronics. Flexible manufacturing also saw increased exports. The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.
Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:
Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.
Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.