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Breaking Down the U.S. Trade Balance May 28, 2019 As an economy evolves and develops, it moves among three stages: • In the first stage, the economy relies mainly on producing agricultural goods. • In the second stage, it shifts away from agricultural goods to manufacturing goods. • In the third stage, the economy moves from manufacturing goods to providing services In this video—taken from a recent Dialogue with the Fed event—Senior Economist Paulina RestrepoEchavarria discusses how this shift has affected the U.S.’s trade balance with the rest of the world. Since the U.S. has entered the third stage of its development, Restrepo-Echavarria says it should not be a surprise that the U.S. would have to import more goods than it exports, as its focus is now more on services. Relatedly, the U.S. has gone from a net importer of services to a net exporter of services over the past several decades. Additional Resources • Dialogue with the Fed: Go with the Flows — The Balancing Act of International Trade • On the Economy: Is Value-Added Trade a Better Measure of Global Trade? • On the Economy: What’s Behind the U.S. Trade Deficit?