GMF - The German Marshall Fund of the United States - Strengthening Transatlantic Cooperation

Trade, a perennial campaign issue in presidential and congressional elections in the 1980s and 1990s, faded from saliency in the last decade. And there is little evidence it will be a major issue in the 2012 campaign.

The dramatic decline in the U.S. trade imbalance since its peak in 2006, thanks to the Great Recession, is one explanation. The issue could reemerge as a major political concern if and when the trade deficit peaks again. Meanwhile, the composition of that deficit will continue to fuel minor trade frictions. It is the quality, not the quantity of the trade deficit that has political salience.

The de-escalation of trade as a political issue is evident in public opinion polling. Very few Americans—less than one-half of 1 percent in a January Gallup survey—volunteered trade as one of the “most important problems” facing the United States in this election year. To put this into perspective: More Americans believe in space aliens than in the dangers of the trade imbalance.

Trade’s political demise in part reflects the dramatic decline in the nominal trade deficit since the middle of the last decade. The U.S. trade deficit in goods and services totaled $560 billion in 2011. That imbalance is down 25.6 percent from its peak of $753 billion in 2006. (It could, however, climb again this year as the economy continues to recover from the Great Recession; the January-February deficit was up 6 percent.)

While the headline trade number may not stir the political controversy it once did, the composition of the trade deficit can still fuel future political trade debates.

Petroleum products, for example, accounted for 44.6 percent of the U.S. trade deficit in goods in the first two months of 2012. So any discussion of the nation’s energy future is also a trade dispute.

The recent improvement in U.S. energy self-sufficiency—imports accounted for only 45 percent of U.S. oil and gas consumption in 2011, down from 60 percent in 2005—may do more in the short run to affect the trade balance, and the subsequent political saliency of trade issues, than any other single development.

And this recent move toward greater energy independence may have only begun. The boom in natural-gas production in the United States already reduced imports by 3 percent in 2010, according to the Energy Information Administration. Once liquefied natural-gas exports are generally permitted, the energy trade deficit will be further eroded. EIA expects that net U.S. imports of natural gas are likely to fall from roughly 13 percent of total supply in 2008 to less than 1 percent in 2035.

With the growing domestic production of natural gas, by 2022 imports may account for only 38 percent of U.S. oil and gas consumption, according to EIA estimates.

If history is any guide, the relative size and nature of the broader trade deficit will also drive trade politics.

Two decades ago, the Washington trade debate was all about Japan. In 1991, the imbalance with Japan accounted for 65.6 percent of the total American trade deficit in goods with the world. By 2011, Japan accounted for just 8.6 percent of that.

By comparison, in 1991 China accounted for 19.2 percent of the U.S. goods deficit. In 2011, it was responsible for 40.7 percent.

It is no surprise, then, that Japan is no longer the focal point of Washington trade controversies. Moreover, this comparison helps explain why the Japan trade wars a generation ago were more intense than current China trade frictions.

Nevertheless, Japan is a major point of contention in President Obama’s signature trade initiative: the Trans-Pacific Partnership. Tokyo would like to join the talks. U.S. automakers strenuously oppose Japanese participation, and much of their opposition can be explained by the composition of the trade imbalance with Japan. Autos account for two-thirds of the current U.S. goods deficit with that country.

The composition of the deficit may also help determine whether Detroit will prevail in this fight. In 1991, the U.S. auto deficit with Japan accounted for an astounding 48 percent of the U.S. trade deficit with the world. Today it accounts for only 5 percent of the total U.S. imbalance. Clearly, issues other than autos—energy and China—now weigh more heavily on American trade concerns.

So, while the trade deficit may have waned as a high-visibility political issue as its headline number has shrunk, it is not irrelevant. The composition of the imbalance still drives trade debates and figures in the broader campaign discussion on energy.

Trade may not be one of the “most important problems” facing the country. But its salience can still be found in its composition.