Tech now accounts for three-quarters of the US trade deficit
The recent commentary highlights that technology now constitutes three-quarters of the U.S. trade deficit, underscoring a critical dynamic in the nation's economic landscape. Per the full note from ING, the U.S. registered a substantial $64 billion deficit solely from technology products in September, significantly impacting GDP growth as these imports primarily benefit producers in countries like Korea and Taiwan. This trend suggests a net negative for domestic growth, especially given that while tech investments are touted for stimulating GDP, much of that value-add is being sourced from abroad. Notably, the broader context of this analysis points toward increasing reliance on foreign tech supply chains amidst domestic economic concerns.
What the desk is arguing
The desk contends that the escalating trade deficit in technology imports indicates a detrimental net effect on U.S. economic growth. This sentiment is reinforced by the data from ING, which notes that despite the U.S. tech sector's growth contributions, the surge in tech imports reflects a significant outflow of capital to countries like Korea and Taiwan, which have seen a 35% and 60% rise in tech exports to the U.S., respectively.
In September, the total trade deficit hit $105 billion, with technology imports soaring to $87 billion per month over the past two years, up from around $20 billion. This stark increase emphasizes the reliance on foreign tech, despite robust investment trends back home.
Where it sits in our coverage
The consensus target for the EUR/USD pair is currently set at 1.075 with a range of 1.04 to 1.12. Specific targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's view of strengthening foreign tech imports aligns closely with jpmorgan but diverges from bofa, suggesting potential volatility depending on forthcoming trade discussions and U.S. GDP adjustments.
How other firms see it
Most firms like jpmorgan and deutsche stress that the trade deficit is increasingly affected by technology imports, potentially exacerbating currency fluctuations. Conversely, firms such as bofa maintain a more optimistic outlook, viewing tech investments as a potential long-term booster for domestic growth despite the current trade imbalances.
Key intersects include monitoring the USD/JPY pair, particularly for insights into how tech trade dynamics might affect currency strength as both nations navigate their unique economic challenges.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Tech imports now represent 75% of the U.S. trade deficit, highlighting a concerning economic trend.
- 02The total U.S. trade deficit was $105 billion in September, with $64 billion stemming from tech products alone.
- 03Rapid growth in tech imports signals reliance on foreign supply chains, detracting from potential domestic GDP growth.
- 04Countries like Korea and Taiwan are major beneficiaries of U.S. tech spending, emphasizing a shift in economic benefit.
Market implications
Traders should monitor the EUR/USD pair closely, particularly around the consensus target zone of 1.075. Stronger imports in tech could lead to U.S. dollar weakening as the trade dynamics evolve, underscoring the importance of upcoming trade balance reports.
Risks to this view
Should the U.S. manage to bolster domestic tech production significantly, or if global geopolitical tensions shift trade patterns, this could reverse the current trajectory of capital outflows. Additionally, a stronger-than-expected U.S. GDP growth statement might challenge the prevailing views on the trade deficit.
Older quick take Quick take Published 14:15 United States Translate Tech now accounts for three-quarters of the US trade deficit There has been a lot of commentary about the contribution of tech investment to GDP growth, but with the US running a trade deficit of $64bn in September in tech products alone, out of an overall trade deficit of $105bn, we need to remember that this aspect actually subtracts from growth. Instead, it is a boon to the likes of Korea and Taiwan High tech imports are contributing substantially to the US trade deficit Tech imports fuelling the surge in the trade deficit The US trade balance figures don't normally get hearts racing, but I think this chart below is astonishing. The US trade deficit was $105bn in September, of which $64bn was due to a deficit in computers, peripherals and semiconductors.
The chart shows how imports of tech products that are destined for data centres around the country have not merely gone exponential, but almost vertical. Less than two years ago, the US was importing around $20bn per month of these products. In September, it was $87bn.
US tech imports ($bn) Source: Macrobond, ING "> Source: Macrobond, ING Tech imports offsetting much of the capex boost within GDP So while there is lots of discussion about how much the tech/AI/data centre investment blitz is boosting growth, much of the value added is coming from overseas. This is a net negative for US growth as money is flowing out of the country to the likes of Korea and Taiwan, from which US imports are up 35% and 60% respectively. The result is the chart below showing the contribution to year-on-year US GDP growth.
The black line is the YoY% growth rate with the blue bars showing the contribution from tech capex and AI token spending (including the chips going into data centres). The purple section is the data centre building (the concrete, steel, etc), but then there is the net exports section in orange, which, because of the scale of the trade deficit in tech, is a significant drag on overall growth right now – much of it actually ended up in inventory building of tech products that will be used in coming quarters. Consequently, the US tech roll-out has been a huge boost to tech-orientated exporting nations.
Only three years ago, the US was a net exporter of tech products! Tech capex contribution to GDP is being offset by a surge in tech imports Source: Macrobond, ING "> Source: Macrobond, ING US Trade Tech Cpaex Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
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