The US current account deficit may seem fantastically large, with over $100bn in payments flowing out of the US relative to inbound payments each quarter, but that works out to less than 2% of GDP at an annual rate; during the last economic expansion, that deficit was as large as 6.3% of GDP.

The US hasn’t run a current account surplus since 1991. To help understand why it’s worth looking at the composition of the US current account. Any current account balance is made up of debits (payments flowing out) and credits (payments flowing in) in three basic categories: trade (exports are credits, imports are debits), primary income (“earned” income by labor or capital, with US ownership of overseas assets or US workers overseas a credit, and overseas ownership of US assets or foreign workers in the US a debit), and secondary income (“transfers”, which are typically remittances to home countries by residents to relatives overseas, and sometimes foreign aid).

The Sankey chart below helps show how all the credits and debits stack up, with debits much larger than credits and hence the US current account being in a deficit.  Since there’s a lot of information in the graph, it may be helpful to click it and enlarge.

As shown, the US current account deficit is driven mostly by the US trade deficit.  While primary and especially secondary income is relatively small in the scope of gross payments, the US actually enjoys a surplus in primary income and secondary income flows are tiny.  The primary plus secondary income categories collectively have a small surplus, all of which is consumed by trade deficits and specifically goods trade deficits. Taking all current account payments together except goods trade, the US actually runs a surplus of over $100bn. In other words, trade deficits in goods are so large that they overwhelm relatively robust surpluses in services and primary income, less small deficits in the modestly sized secondary income category.