Growing U.S. Trade Deficit in Consumer-Oriented Agricultural Products

Abstract

We investigate the factors behind the growing U.S. trade deficit in consumer-oriented agricultural products by using reliable panel data and an empirical trade model derived from international trade theory. The results indicate that per capita income in the United States appears to be the most important determinant for the growing U.S. trade deficit of consumer-oriented agricultural products. An increase in per capita income and trade liberalization in foreign countries would improve the U.S. trade balance. U.S. foreign direct investment abroad in food manufactures and the North American Free Trade Agreement (NAFTA) are found to have negative effects on the U.S. trade balance.

Determinants for international competitiveness of the food industry in 43 countries world-wide: evidence from panel models

“…It is in line with previous studies carried out at the macroeconomic level by Falk (2008), Hossain (2009), Mohammad (2010) and Elhanom (2016), as well as with mesoeconomic analyses related to the agrifood sector presented e.g. by Zhuang et al (2007).…”

“…It should be noted here that a positive impact of relative demand and increasing trade openness on the trade balance in the Czech and Polish manufacturing sub-sectors has already been confirmed by Olczyk and Kordalska (2018). Similar observations for the US agri-food trade balance were made by Zhuang et al (2007), who indicated that as per capita income increases in foreign countries, their imports from the US will grow faster than their exports, contributing to the improvement of the US agri-food trade balance.…”

“…by Olczyk and Kordalska (2018) to compare the determinants of international competitiveness for the manufacturing industries in Poland and Czechia. When exploring agricultural and food industries, trade balance as a measure of international competitiveness was employed among others by Zhuang et al (2007), Sertoglu and Dogan (2016) or Bojnec and Fertő (2009).…”

“…As far as the agri-food industry is concerned, Zhuang et al (2007) using the generalised least squares (GLS) estimation method indicated that per capita income in the US appears to be the most important factor behind the growing trade deficit. It results from that study that increases in per capita income along with rising foreign market openness improve the US agrifood trade balance, while US foreign direct investments in food industries abroad, a strong US dollar and membership in the North American Free Trade Agreement (NAFTA) -due to the faster rate of growth of imports from Canada and Mexico compared to exports to those markets -have negative effects on the trade balance.…”

“…For instance, Sertoglu and Dogan (2016) using the autoregressive distributed lag (ARDL) approach investigated agricultural trade balance drivers in Turkey. Zhuang et al (2007) employed the generalised least squares (GLS) estimation method to analyse the determinants of agri-food trade balance in the US, while Bojnec and Fertő (2009) applied the fixed effects (FE) panel model to decompose determinants of competition in bilateral agri-food trade between five Central European countries and the EU-15. More comprehensive analyses, but still not exhaustive in their subjective scope, related to the factors determining agri-food trade of the EU and the Organisation for Economic Cooperation and Development (OECD) countries were presented by Fertő (2015b, 2018).…”