Almost entirely on the back of stronger exports, last week the U.S. Commerce Department revised upward its economic growth estimate for the second quarter, from 1.7 to 2.5 percent. Exports from April to June grew at their fastest pace in two years, pushing down the U.S. trade deficit to 2.7 percent of gross domestic product. That’s less than half what it was at its peak of around 6 percent of GDP in late 2005.
Most of the boost in exports came from tangible stuff sold abroad: goods, rather than services. The biggest among them were petroleum products refined from all the crude oil the U.S. is producing—unlocked by fracking. Through June, the U.S. has exported an average of 99 million barrels of petroleum each month over the past year. That’s roughly quadruple the amount the U.S. was exporting a decade ago.
The story of the shrinking U.S. trade deficit is essentially the story of the U.S. oil boom. The last time the U.S. came close to balancing out the trade deficit, at least in terms of its share of GDP, was just after a recession ended in 1991. To feed the broad expansion that followed, U.S. oil imports grew by more than 130 percent over the next 15 years, from 192 million barrels a month in early 1991 to a peak of about 455 million barrels a month in the summer of 2006.
As the price of oil went from about $20 a barrel to close to $80 per barrel over that time, the trade deficit blew out, dragging down growth. According to Scott Anderson, chief U.S. economist at Bank of the West, from 1996 to 2006 the widening trade imbalance chewed an average of 0.5 percentage points off GDP growth each year.
Now that U.S. refiners are replacing imported crude with domestic oil from North Dakota, Texas, and Oklahoma, trade is starting to be less of a drag on the economy. In 2011, the U.S. became a net exporter of petroleum products for the first time in 60 years. The U.S. has always been a refining powerhouse, particularly along the Gulf Coast, which accounts for about 70 percent of all U.S. petroleum exports. Now that refiners have an abundant supply of high quality, relatively cheap crude to tap domestically, they can really flex their muscles abroad.
Except for about 3.5 million barrels of crude oil piped up to Canada, most of what the U.S. exports is refined fuel such as gasoline and diesel. The country is finding new buyers all over the world: India, Brazil, China, Turkey, and Canada all saw big increases in the number of petroleum products imported from the U.S. Now that Europe is starting to grow again, some of the biggest gains in the second quarter came from France, the U.K., and the Netherlands.
The big question is whether the U.S. can continue to expand its economy while also shrinking its trade deficit—something it hasn’t been able to do for a generation or more. The U.S. will start exporting natural gas at some point over the next few years. That could be the clincher.