Economic Analysis: Which Countries Drive America's Trade Deficits

By Jason Cooper, CPA Research Assistant      

            In 2015 the USA ran a $746 billion trade deficit in goods, seven times the 1992 level.  In those 23 years, the deficit has gone from 1.5% of our GDP to 4.2%. Our overall goods deficit is driven by a handful of countries.  America’s bilateral trade deficits with China, Germany, Japan, Mexico, Vietnam, Ireland, South Korea, and Italy totaled $682 billion last year, equivalent to nearly 91% of our global deficit.  

            There is little correlation between trade agreements and improved USA trade performance. The USA has bilateral or multilateral trade agreements with all top deficit countries. However different industries give rise to those imbalances depending upon the country. Many of these countries have export-oriented growth strategies in that they overproduce, underconsume, and thus rely upon the US market for growth rather than sufficiently increasing internal consumption.

Top 8 Deficit Drivers

            China is responsible for America’s largest bilateral deficit, at $367 billion, dwarfing any other. This deficit grew twentyfold over the 1992-2015 period.  It is driven predominantly by machinery and electronics, which together account for well over half of the whole deficit.  Toys and furniture account for another $50+ billion.  In neoclassical economic theory, such a large, persistent deficit would drive up the value of the yuan and bring China’s surplus down, but this has not happened due to a range of Chinese government policies including currency manipulation and government subsidies to export industries.

            Germany ran a $74 billion surplus with the USA in 2015, making it the 2nd biggest bilateral deficit for us. The biggest contributor to the deficit was vehicles, mainly automobiles, followed by machinery and electronics. Germany’s overall trade surplus, at some 8% of its GDP, is the world’s largest in proportion to its economic size.

            Japan was once America’s largest bilateral deficit partner, until China surpassed it in 2000. In 2015, our deficit with Japan totaled $69 billion. Mexico, a NAFTA country, holds 4th place at $61 billion. 

            America’s deficits with Mexico and Japan, like Germany, are due predominantly to vehicles, followed by machinery and electronics.  Our deficit with Japan has not been reduced over the last few decades despite reciprocal tariff reductions through the GATT (General Agreement on Tariffs and Trade) and WTO systems.

            The USA enjoyed a $5 billion surplus with Mexico in 1992. But following ratification of the North American Free Trade Agreement, our surplus with Mexico turned to deficit and then exploded, as USA and global manufacturers invested in Mexico as a cheap way to offshore production and re-enter the USA market duty-free.

            Vietnam and Ireland are the 5th and 6th biggest deficit drivers, at $31 and $30 billion respectively, but differ from other entries in the list with regards to cause.  For Vietnam, the trade deficit is dominated by clothing and apparel.  Our deficit with Ireland is mostly due to pharmaceuticals, organic chemicals, and medical equipment.  Ireland’s unique status as a tax haven means the deficit is influenced not only by manufactured goods, but also by financial transactions often involving intellectual property. Both Vietnam and Ireland are WTO countries.

            South Korea and Italy are the 7th and 8th biggest deficit drivers, each at around $28 billion.  In both cases, the deficits are dominated mainly by vehicles, machinery, and electronics.  Our overall trade deficit with South Korea doubled in the three years after implementing a bilateral trade agreement with that country.

Other Countries to Watch

            India is in 9th position. America’s deficit with that country rose from $2 billion to $23 billion since 1992, thanks partly to medical and apparel imports. If the Indian economy continues to grow with an export-oriented growth strategy, it is likely to become an even more important deficit driver in the future.  Malaysia has fallen to 10th place on the list, thanks to electronics and machinery imports.

            America’s deficit with Canada, a NAFTA country, is currently ‘only’ $17 billion (13th largest), thanks in part to the USA running a trade surplus in machinery and electronics.  Before the Great Recession, Canada was briefly the USA’s 2nd biggest deficit partner, with a deficit peaking at $78 billion. That deficit was heavily influenced by our annual Canadian fossil fuels bill of roughly $49 billion.  That deficit has declined as our self-sufficiency in fossil fuels has risen and the oil price has declined. The future trade balance with Canada will depend partly on  future developments in the oil and gas market.

Top 8

1992 Deficit

2015 Deficit


Deficit Drivers


-$18 billion

-$367 billion


Electronics & Machinery (-$211B), Furniture (-$28B), Toys (-$24B)


-$8 billion

-$74 billion


Vehicles (-$27B), Electronics & Machinery (-$22B), Medical Products & Chemicals (-$17B)


-$49 billion

-$69 billion


Vehicles (-$44B), Electronics & Machinery (-$34B)


+$5 billion

-$61 billion


Vehicles (-$52B), Electronics & Machinery (-$29B)


+$5 billion

-$31 billion


Apparel (-$14B), Electronics & Machinery (-$9B), Furniture (-$4B)


+$1 billion

-$30 billion


Medical Products and Chemicals (-$28B)

South Korea

-$2 billion

-$28 billion


Vehicles (-$20B), Electronics & Machinery (-$13B)


-$4 billion

-$28 billion


Electronics & Machinery (-$8B), Vehicles (-$4B)







-$2 billion

-$23 billion


Medical Products and Chemicals (-$6B), Apparel (-$4B)


-$4 billion

-$23 billion


Electronics & Machinery (-$18B)


-$8 billion

-$16 billion


Fossil Fuels (-$49B)

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  • William Ryan
    The last time I looked the trade deficit with China was close to $500B for 2016. Also remember that China is the only communist country of all the trading countries on the list. The China deficit is greater than all the other countries combined. The Chinese system of government with communist capitalism is not superior to ours as it has no democracy, freedoms and human rights. The variable rate tariff on certain select goods still looks like the right thing to do with China but we must watch closely for unintended consequence as we begin to make many things again in America . Mr. Lighthizer USTR knows that China has take huge amounts of wealth out of America over the past years to pull up 20-30M Chinese out of poverty while they won’t help with N. Korea. He also knows that the China market rigging and I.P. theft must stop.