International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Tuesday, December 22, 2020

U.S. International Transactions, 3rd Quarter 2020

Current Account Deficit Widens by 10.6 Percent in Third Quarter

Current Account Balance, Third Quarter

The U.S. current account deficit, which reflects the combined balances on trade in goods and services and income flows between U.S. residents and residents of other countries, widened by $17.2 billion, or 10.6 percent, to $178.5 billion in the third quarter of 2020, according to statistics released by the U.S. Bureau of Economic Analysis. The revised second quarter deficit was $161.4 billion.

The third quarter deficit was 3.4 percent of current dollar gross domestic product, up from 3.3 percent in the second quarter.

The $17.2 billion widening of the current account deficit in the third quarter mostly reflected an expanded deficit on goods that was partly offset by an expanded surplus on primary income.

Quarterly U.S. Current Account and Component Balances
Coronavirus (COVID-19) Impact on Third Quarter 2020 International Transactions
All major categories of current account transactions increased in the third quarter of 2020 following notable declines in the second quarter, reflecting the resumption of trade and other business activities that were postponed or restricted due to COVID-19. In the financial account, most of the currency swaps between the U.S. Federal Reserve System and foreign central banks that remained at the end of the second quarter were ended in the third quarter, contributing to the continued U.S. withdrawal of deposit assets abroad and the continued U.S. repayment of deposit and loan liabilities. A record level of net shipments of U.S. currency abroad to meet the demand for U.S. currency by foreign residents increased U.S. currency liabilities, partly offsetting the net repayment of U.S. deposit liabilities. The full economic effects of the COVID-19 pandemic cannot be quantified in the statistics because the impacts are generally embedded in source data and cannot be separately identified. For more information on the impact of COVID-19 on the statistics, see the technical note that accompanies this release.

Current Account Transactions (tables 1-5)

Exports of goods and services to, and income received from, foreign residents increased $99.4 billion, to $796.0 billion, in the third quarter. Imports of goods and services from, and income paid to, foreign residents increased $116.6 billion, to $974.5 billion.

Quarterly U.S. Current Account Transactions

Trade in Goods (table 2)

Exports of goods increased $68.4 billion, to $357.1 billion, and imports of goods increased $94.4 billion, to $602.7 billion. The increases in both exports and imports reflected increases in all major categories, led by automotive vehicles, parts, and engines, mainly parts and engines and passenger cars.

Trade in Services (table 3)

Exports of services increased $2.8 billion, to $164.8 billion, mainly reflecting an increase in charges for the use of intellectual property, mostly licenses for the use of outcomes of research and development, that was partly offset by a decrease in travel, primarily education-related travel. Imports of services increased $6.5 billion, to $107.7 billion, mainly reflecting increases in charges for the use of intellectual property, mostly licenses for the use of outcomes of research and development; in transport, primarily sea freight transport; and in travel, primarily other personal travel.

Primary Income (table 4)

Receipts of primary income increased $26.8 billion, to $238.7 billion, and payments of primary income increased $11.9 billion, to $190.6 billion. The increases in both receipts and payments mainly reflected increases in direct investment income, primarily earnings.

Secondary Income (table 5)

Receipts of secondary income increased $1.4 billion, to $35.3 billion, reflecting an increase in private transfers, mostly private sector fines and penalties, that was partly offset by a decrease in general government transfers, mainly government sector fines and penalties. Payments of secondary income increased $3.7 billion, to $73.5 billion, reflecting increases in private transfers, primarily private sector fines and penalties, and in general government transfers, mostly international cooperation.

Capital Account Transactions (table 1)

Capital transfer receipts increased $0.3 billion, to $0.4 billion, in the third quarter, reflecting the U.S. Department of State’s sale of a property in Hong Kong.

Financial Account Transactions (tables 1, 6, 7, and 8)

Net financial account transactions were −$221.1 billion in the third quarter, reflecting net U.S. borrowing from foreign residents.

Financial Assets (tables 1, 6, 7, and 8)

Third quarter transactions decreased U.S. residents’ foreign financial assets by $73.0 billion. Transactions decreased other investment assets, mostly currency and deposits, by $288.1 billion. Transactions in deposits included a net withdrawal by the U.S. Federal Reserve of $203.0 billion from deposits abroad related to the ending of currency swaps. Transactions increased direct investment assets, mostly equity, by $71.1 billion; portfolio investment assets, mostly equity securities, by $142.2 billion; and reserve assets by $1.8 billion.

Liabilities (tables 1, 6, 7, and 8)

Third quarter transactions increased U.S. liabilities to foreign residents by $172.0 billion. Transactions increased direct investment liabilities, both equity and debt, by $70.5 billion and portfolio investment liabilities, mostly equity securities, by $147.5 billion. Transactions decreased other investment liabilities, mostly loans, by $46.0 billion.

Financial Derivatives (table 1)

Net transactions in financial derivatives were $24.0 billion in the third quarter, reflecting net lending to foreign residents.

Updates to Second Quarter 2020 International Transactions Accounts Balances

Billions of dollars, seasonally adjusted
  Preliminary estimate Revised estimate
Current account balance −170.5 −161.4
    Goods balance −219.3 −219.5
    Services balance 54.4 60.9
    Primary income balance 29.2 33.2
    Secondary income balance −34.9 −35.9
Net financial account transactions −82.6 −206.6

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Next release: March 23, 2021 at 8:30 A.M. EDT

https://lawprofessors.typepad.com/intfinlaw/2020/12/us-international-transactions-3rd-quarter-2020.html

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