Changes in Balance of Trade

A good way to summarize the history of American foreign trade is to examine a series of international balance-of-payments statements. As Table 20.4 shows, Americans paid out a net total of $1.8 billion (columns 2 + 3) between 1850 and 1873. Residents of the United States could enjoy this net inflow of goods and services and pay interest and dividends on existing foreign investments largely because foreign nationals continued to make new investments in American businesses (column 4), especially in railroads. Another balancing item during this period was the $200 million in foreign currencies brought or sent to the United States and changed into dollars by immigrants and their families. Such payments are called unilateral transfers (column 5).

From 1874 to 1895, American agricultural commodities were available to the world market in rapidly increasing quantities. When we consider that the manufacturing industries of the United States were also becoming progressively more efficient, reflecting America’s growing comparative advantage in the production of goods dependent on mineral resources, it is hardly surprising to find that exports increased as they did. During these years, the favorable trade balance was reduced by the growing tendency of Americans to use the services of foreigners. Even so, Americans had net credits on

TABLE 20.4 UNITED STATES INTERNATIONAL PAYMENTS, BY PERIODS (IN BILLIONS OF DOLLARS)

Notes: A minus sign indicates an addition to the U. S. monetary gold stock. Changes in the monetary gold stock include errors and omissions. Source: Historical Statistics, Colonial Times to 1970, 1975, 865-869.

Current account of $1.7 billion (column 2), and foreign investors poured another $1.5 billion into this country (column 4). Offsetting the credits were more than $2 billion in interest and dividend payments to foreigners, and on balance, unilateral transfers began to reverse themselves as immigrants sent substantial sums back to friends and relatives in their countries of origin. To make up the balance, the United States imported $400 million in gold (column 6).

During the prosperous years of 1896 to 1914, the United States came into its own as an economic power. The net balance on goods and services was about $7 billion (about $2 trillion in 2011dollars using GDP per capita as the inflator). This surplus was partially offset by interest and dividend payments to foreign investors, remittances of immigrants to their families, and by net foreign investments, producing an inflow of gold. The reversal in the international capital flows, though small compared with domestic investment in the United States, nevertheless had considerable symbolic meaning. The United States had become a lender rather than a borrower, a sign in those days of economic maturity.