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The numbers: The U.S. trade deficit jumped 27% in 2021 to a record $859 billion largely because a recovering economy gave Americans the means to buy more imports. Yet they also paid higher prices due to rising inflation.
The deficit widened in December by 1.8% to $80.7 billion, marking it the second largest monthly increase ever. Economists polled by The Wall Street Journal had forecast a $82.9 billion shortfall.
The bigger trade gap at the end of the year likely reflects efforts by U.S. ports to clear out a backlog of cargo containers and get imported goods to businesses in time for the holiday shopping season.
Rising inflation also played a role, especially for key imports such as oil. Demand for imported fuel surged last year as the economy sped up and more people began driving again.
Big picture: The deficit is expected to subside once the economies of other countries catch up and demand for America exports fully recovers. Yet the U.S. has run large deficits for years and that’s likely to continue.
High deficits are generally viewed as a negative because they subtract from gross domestic product, the official scorecard of the economy. It also means the U.S. does not produce enough of what it buys.
At the same time, foreigners have been converting lots of money into dollars and effectively financing the deficits because they see the U.S. as the best place to invest. That’s a sign of confidence, economists say.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were set to open mixed in Tuesday trades.
