In its simplest form, the definition of terms of 

trade is the ratio of the price index of a country’s exports to the price index of its imports. 

An increase in this ratio means that a country’s terms of trade are more favorable and its 

gains from trade are greater. In other words, 

the higher the prices received for a country’s 

exports, the less quantity of goods it has to 

ship for a given market basket of imports. 

For example, let’s say that the United States 

exports wheat at $10 a bushel, while it imports 

a barrel of crude petroleum at $100 a barrel. 

The United States would have to produce and 

export 10 bushels of wheat to pay for every 

barrel of imported oil. However, if the price of 

oil were to fall to only $50 a barrel, the United 

States could pay for that barrel of oil by exporting only 5 bushels of wheat.2

 To put it another way, let’s say that a barrel of oil is equivalent to 42 gallons of gas, and a bushel of wheat 

can make 100 loaves of bread. If oil is priced 

at $100 a barrel, the United States would have 

to sell the equivalent of roughly 333 loaves of 

bread to “pay” for an average fill-up at the gas 

station (approximately 14 gallons).

The terms of trade concept rests on the assumption that trade flows for every country 

must be in balance in the long run; that is, 

the value of exports must equal the value of 

imports. Although this assumption is certainly 

relaxed in practice, as evidenced by the longThe great commerce of every civilized society 

is that carried on between the inhabitants of 

the town and those of the country. It consists 

in the exchange of rude for manufactured 

produce, either immediately, or by the intervention of money, or of some sort of paper 

which represents money. The country supplies 

the town with the means of subsistence and the 

materials of manufacture. The town repays this 

supply by sending back a part of the manufactured produce to the inhabitants of the country.

Adam Smith, 17761

Economics—and Adam Smith—teach us that 

trade is healthy for a nation’s economy and for its 

standard of living. As with trade between town 

and country, trade between one nation and 

another is designed to maximize the volume of 

goods and services an entity can consume, in 

balance with the volume of goods and services 

the entity can produce. In light of the current debate about the advantages and disadvantages of 

U.S. and world trade, this article examines one interesting method for measuring a country’s gains 

from trade: analyzing its terms of trade index.

Current Price Topics

U.S. Import and Export 

Prices and the Terms of 

Trade

1

Import and Export Prices: First Quarter 2011

U.S. Bureau of Labor Statistics May 2011 Volume 2, Number 1
2

standing U.S. trade deficit, this limitation still 

plays a significant role in the ability of many 

of the world’s developing nations to sustain 

economic growth.

Historically, trends in the terms of trade index 

were considered critical to a country’s ability 

to prosper. Most trade tended to be between 

countries that specialized in manufactured 

goods, instead of with those that supplied raw 

materials. In particular, it was assumed that the 

cost of producing raw materials would go up 

over time, because supply of land and natural 

resources is limited. As a consequence, the 

terms of trade would turn against countries 

specializing in manufactured products and in 

favor of those that specialize in raw materials 

or primary products.

This view was generally accepted until around 

1950 when several studies provided evidence 

that the terms of trade were turning against 

developing countries and their raw material exports.3

 Ever since, questions about the 

long-term direction of the terms of trade have 

persisted.4

Trade in raw materials still represents a significant component of the merchandise trade 

in the United States, although most trade in 

merchandise goods today consists primarily 

of manufactured products.5 An analysis of the 

terms of trade index for the United States during the past 20 years indicates that the index 

has tended to vary by less than 10 percent. A 

spike in the import price index in 2008 (driven 

by sharply higher prices for fuels) was offset to 

some extent by a jump in the export price index (related to higher grain prices). (See chart 

1.) Given the recent surge in market prices for 

petroleum as well as grains, the terms of trade 

for the United States will bear watching.

The primary source of income for many developing countries still flows from exported 

raw materials. According to a recent study 

by the International Monetary Fund (IMF), 37 

countries receive 50 percent or more of their 

export earnings from primary commodities.6

(The IMF produces an estimate of each country’s terms of trade and uses this information 

in assessing a country’s economic vitality.) 

Chart 2 illustrates the terms of trade indexes 

during the past decade for the United States, 

Chile, and Pakistan. Although the terms of 

trade for the United States have been fairly flat 

during this period, Pakistan has had a sharp 

deterioration in its index. Pakistan’s chief 

export is textile products, a sector affected by 

increasing world competition. In contrast, the 

terms of trade for Chile has improved significantly during this time, as world demand for 

its chief export, copper, has soared.

With the volume of world trade predicted to 

grow significantly during the next few years, 

the need to analyze price trends in international trade will be increasingly important, 

and terms of trade indexes will continue to be 

an important tool for that analysis.7

 C U R R E N T P R I C E T O P I C S
3

 C U R R E N T P R I C E T O P I C S

40

60

80

100

120

140

160

180

200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Index value 2000 = 100

Chart 2. Comparison of terms of trade indexes for Chile, Pakistan, and 

the United States, 2000–09

Chile Pakistan United States

SOURCES: U.S. Bureau of Labor Statistics and The World Bank

80

90

100

110

120

130

140

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Index value 2000 = 100

Chart 1. Comparison of U.S. terms of trade index and export-import 

price indexes, 1989–2010

Terms Of Trade Import Price Index Export Price Index

SOURCE: U.S. Bureau of Labor Statistics

Chart 2. Comparison of terms of trade indexes for Chile, Pakistan, and 

the United States, 2000–09

Chart 1. Comparison of U.S. terms of trade indexes and export import

prices indexes, 1989–2010
Import prices

For the first quarter of 2011, import prices 

increased 5.7 percent, following a 4.2-percent 

advance during the fourth quarter of 2010. 

The first quarter 2011 increase was driven by 

a sharp rise in fuel prices, and was the largest 

quarterly rise since the price index rose 9.0 

percent during the second quarter of 2008. 

A 1.8-percent advance in nonfuel prices also 

contributed to the increase in import prices 

for the quarter ended in March.

Fuel import prices

Prices for fuel imports rose 18.4 percent during 

the first quarter of 2011, which was the largest 

quarterly increase since prices advanced 36.8 

percent during the second quarter of 2009. 

Prices rose in each of the three months of the 

quarter, increasing 4.1 percent in January, 4.2 

percent in February, and 9.0 percent in March.

Petroleum prices led the first quarter increase, 

rising 19.2 percent. Much of the advance took 

place in March, when the price index rose 10.5 

percent. Political unrest in the Middle East 

throughout the quarter was a major contributor to the rise in petroleum prices. Prices 

increased as fears of petroleum supply disruptions mounted with the onset of wide-scale 

antigovernment protests in Egypt in January.8 

Civil unrest broke out in Libya in late February, 

and by March had escalated into open warfare 

between the ruling regime of Muammar Gaddafi and antigovernment forces. Two main 

factors drove the price of petroleum higher: the 

violence in Libya stoked fears of supply disruptions, and U.S. jobs data indicated expectations 

of economic growth.9

 The price index for natural gas increased 4.8 percent during the first 

quarter of 2011. Prices increased 10.4 percent in 

both January and February largely because of 

cold weather in much of the United States, but 

fell by 14.0 percent in March due to an abundance of supply as temperatures rose.10

Nonfuel import prices

During the first quarter of 2011, the price index 

for nonfuel imports increased 1.8 percent, the 

largest quarterly advance since a 2.3-percent 

rise in June 2008. As shown in chart 3, rising 

prices for industrial supplies and materials, and 

foods, feeds, and beverages were the major 

contributors to the overall increase in nonfuel prices. Rising prices for each of the major 

finished goods categories also contributed to 

the overall increase in nonfuel import prices, 

though they had a less significant impact.

Prices for industrial supplies and materials, excluding fuels, increased 5.4 percent in the first 

quarter of 2011, which was, along with an identical advance in the fourth quarter of 2010, the 

largest increase since a 7.2-percent increase in 

the second quarter of 2008. Higher prices for 

iron and steel mill products and other precious metals, which rose 15.1 and 12.0 percent 

respectively, led the advance. The aforemen4

 C U R R E N T P R I C E T R E N D S

Current Price Trends

Quarterly Price Highlights
0.19

0.06

0.07

0.93

0.58

0.00 0.20 0.40 0.60 0.80 1.00

Consumer goods, 

excluding automotives

Automotive vehicles

Capital goods

Industrial supplies and 

materials, excluding fuel

Foods, feeds, and beverages

Percent change contribution SOURCE: U.S. Bureau of Labor Statistics

NOTE: Due to rounding, figures do not add to total.

Chart 3. Major contributors to the 1.8-percent increase in the first quarter 2011 in 

tioned increases were part of a broad increase 

in unfinished metals and commodities prices. 

Many of the prices of commodities such as 

precious metals were driven up by investors 

amidst economic uncertainty.11

The price index for foods, feeds, and beverages rose 7.7 percent in the first quarter of 

2011, the largest increase since an 8.1-percent 

advance in the fourth quarter of 1985. Much 

of the increase was brought about by rising 

vegetable prices, which jumped 20.4 percent 

during the first quarter of 2011. Freezing temperatures across the southern United States, as 

well as a severe freeze in Mexico, key growing 

areas for early season produce, damaged crops 

of tomatoes, peppers, lettuce, eggplants, and 

other types of vegetables.12

The price index for consumer goods rose 0.6 

percent, the largest quarterly advance since a 

0.9-percent increase in the second quarter of 

2008. Higher prices for cotton apparel were 

a major contributor to the overall increase in 

the index. Prices for automotive vehicles advanced 0.5 percent in the first quarter of 2011. 

A combination of higher prices for metals and 

a weakening of the U.S. dollar contributed to 

the overall increase. The price index for capital 

goods rose 0.2 percent.

Export prices 

The export price index rose 4.1 percent in the 

first quarter of 2011, following a 3.1-percent 

increase during the fourth quarter of 2010. 

The most recent advance marked the eighth 

consecutive quarter in which export prices 

have increased, and was the largest quarterly 

rise since the index was first published in 1983. 

The price index for exports of agricultural 

commodities increased 10.3 percent during 

the first quarter of 2011, and nonagricultural 

exports rose 3.3 percent over the same period, 

5

 C U R R E N T P R I C E T R E N D S

Chart 3. Major contributors to the 1.8-percent increase in the first quarter 2011

in import prices, excluding fuel
the largest quarterly advance since the index 

was first published in 1985. 

Agricultural export prices

The first quarter increase was driven by rising 

prices for corn and cotton, which advanced 

27.2 percent and 30.7 percent, respectively. 

Several factors drove up corn prices in the first 

quarter. At the beginning of March, U.S. inventories were an estimated 6.52 billion bushels, 

which was 15 percent lower than the previous 

year.13 An increase in the usage of corn for the 

production of ethanol also drove prices higher, 

and the U.S. Department of Agriculture reported that export demand was strong during 

the first quarter of 2011. Growing domestic 

demand for meat in China led to growing livestock feed needs, increasing China’s demand 

for corn from the United States.14 Cotton prices 

rose because of strong demand and a tight 

supply situation. Devastating floods in Pakistan, export restrictions in India, and strong 

demand in China that outstripped domestic 

production, all contributed to the historic rise 

in cotton prices.

Nonagricultural export prices

The price index for nonagricultural exports 

increased 3.3 percent in the first quarter of 

2011. As seen in chart 4, rising prices for nonagricultural industrial supplies and materials 

drove the increase. The price indexes for capital goods, automotive vehicles, and consumer 

goods also advanced for the quarter ended 

March 2011. 

Nonagricultural industrial supplies and materials prices rose 8.7 percent during the first quarter of 2011, the largest quarterly advance since 

the index was first published in 1989. As was 

the case in 2010, a broad commodities rally 

was responsible for the increase. Rising prices 

6

 C U R R E N T P R I C E T R E N D S

0.04

0.04

0.17

3.07

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50

Consumer goods, 

excluding automotives

Automotive vehicles

Capital goods

Nonagricultural industrial 

supplies and materials

Percent change contribution SOURCE: U.S. Bureau of Labor Statistics

NOTE: Due to rounding, figures do not add to total.

Chart 4. Major contributors to the 3.3-percent increase in the first quarter 2011 in 

export prices, excluding agriculture

Chart 4. Major contributors to the 3.3-percent increase in the first quarter 2011

in export prices, excluding agriculture
 C U R R E N T P R I C E T R E N D S

for fuels, metals, and chemicals were all major 

contributors to the overall increase. The export 

price index for fuel oil increased 27.8 percent, 

and iron and steel mill products advanced 16.7 

percent during the quarter. Rising prices for 

industrial organic chemicals, other precious 

metals, and aluminum, which increased 7.4 

percent, 8.4 percent, and 7.4 percent, respectively, also contributed to the rise in nonagricultural industrial supplies and materials.

7

Consumer goods prices rose 1.2 percent in the 

first quarter of 2011, automotive vehicles prices 

advanced 0.5 percent, and the price index for 

capital goods ticked up 0.1 percent.

For more information, contact William Alterman at (202) 691-7108 or by email (alterman.

william@bls.gov), or Edwin Bennion at (202) 

691-7142 or by email (bennion.edwin@bls.

gov).

1

 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (London, 1776), book III, chapter 1.1, http://www.

econlib.org/library/Smith/smWN.html.

2

 As of February 22, 2011, the price for crude petroleum on the New York Mercantile Exchange was $98.00 a barrel, while the price 

for hard red winter wheat on the Kansas City Board of Trade was $8.79 a bushel.

3

 R. Prebisch, The Economic Development of Latin America and its Principal Problems (New York, UN Economic Commission for 

Latin America, 1950); and H.W. Singer, “The distribution of gains between investing and borrowing countries,” American Economic 

Review 40 (May 1950), pp. 473–85.

4

 See, for example, D. Diakosavvas and P. L. Scandizzo, “Trends in the Terms of Trade of Primary Commodities, 1900-1982: The 

Controversy and Its Origin,” Economic Development and Cultural Change 39 (1991), pp. 231–64.

5

 For the United States, in the year 2010, 68 percent of exported goods and 74 percent of imported items were manufactured products.

6

 Nikola Spatafora and Irina Tytell, “Commodity Terms of Trade: The History of Booms and Busts,” IMF Working Paper WP/09/205 

(2009).

7

 The January 2011 issue of the World Bank’s publication Global Economic Prospects forecast the volume of world trade to grow by 

8.3 percent in 2011 and 9.6 percent in 2012 

8

 Sandy Shore, “Oil Prices Surge on Middle East Unrest,” ABC News, January 28, 2011, http://abcnews.go.com/Business/

wireStory?id=12786671.

9

 Robert Gibbons, “Oil Rises to 2-1/2 Year Peak on Job Rise, Supply Fear,” Reuters, April 1, 2011, http://www.reuters.com/article/2011/04/02/us-markets-oil-idUSTRE72D01W20110402.

10 Matt Day, “Natural Gas Drops in Late Selloff,” The Wall Street Journal, March 29, 2011, http://online.wsj.com/article/SB100014

24052748704471904576229030889075582.html.

11 Matt Whitaker, “Precious Metals: Investors Seeking Refuge Boost Gold, Silver,” The Wall Street Journal, April 8, 2011, http://

online.wsj.com/article/BT-CO-20110408-707513.html.

12 Paul Hollis, “Cold Weather Influencing Fresh Vegetable Prices, Supplies,” Delta Farm Press, March 31, 2011, http://deltafarmpress.com/orchard-crops/cold-weather-influencing-fresh-vegetable-prices-supplies.

13 Caroline Henshaw, “High Grain Prices Here to Stay,” The Wall Street Journal, March 31, 2011, http://online.wsj.com/article/SB1

0001424052748703712504576234600508848760.html.

14 Tom Polansek, “China Buys U.S. Corn After Long Break,” The Wall Street Journal, March 19, 2011, http://online.wsj.com/article/SB10001424052748704608504576208913644223364.html. 

Notes