Overview The United States is the world's biggest economy (in nominal dollars), leading trading nation (goods and services), and largest source of and destination for foreign direct investment. The U.S. output of goods and services, or gross domestic product (GDP), totaled $19.5 trillion in 2017. That is almost the combined GDP of the next three largest economies. All told, the United States, with close to 5% of the world's population, accounted for almost 25% of the world's output and more than 16% of its growth in 2017. While the United States is the world's largest exporter (goods and services combined), U.S. exports are overshadowed by the large U.S. demand for imported products. However, the level of both U.S. exports and imports of goods and services depends on many interrelated domestic and international factors, including the value of the U.S. dollar relative to other currencies, global demand for other dollar-denominated assets—including U.S. Treasury securities, and the relative strength of the U.S. and world economies. While the United States is still by far the dominant economy in the world, its relative position has shifted in the past two decades. Changes in U.S. trade patterns pose both opportunities and challenges for U.S. international trade relations. These developments have intensified congressional interest in U.S. trade policy and demand for information and analysis of U.S. trade flows. In coming months, Congress may face issues such as shaping U.S. trade policy to reflect this changing composition of trade; enhancing the competitive position of U.S. firms, workers, and industries, promoting access to new foreign market opportunities for U.S. businesses, and addressing tensions, trade barriers and issues raised by the growing role of emerging economies in the global economy. In addition, questions affecting U.S. trade trends could also arise as the Trump Administration renegotiates FTAs and pursues new ones, and Congress debates and potentially ratifies them. Recent Developments in International Trade International trade is an important engine not only of the U.S. economy, but of the global economy. Total trade (exports plus imports) as a share of global GDP has risen from 25% in 1960 to 56% in 2017 ( Figure 1 ). Greater openness to trade and trade reforms worldwide have been linked to higher growth in productivity and real incomes, as well as to reduced poverty worldwide. For decades since World War II, annual real global trade growth outpaced GDP growth, growing on average 1.5 times faster. This trend has not held in recent years as the global economy recovered from the global financial and economic crisis. Real growth in the volume of world merchandise trade slowed to 2.0% in 2016—the slowest pace of growth since 2009. Trade growth has seen some rebound, increasing to 5.4% in 2017—the strongest growth rate since 2011, driven mainly by cyclical factors, particularly higher investment and consumption expenditure. Overall, analysts attribute the trend of weakened international trade growth in previous years to several factors, including weak import demand, exchange rate fluctuations, and falling commodity prices. The slowdown in world investment and China's rebalancing toward a consumption-driven economy are seen by some as major structural factors, while others consider growing trade protectionism to be equally important. With the improving global economic outlook, a rebound in trade growth had been projected for 2018 and 2019 by the International Monetary Fund (IMF) and the World Trade Organization (WTO). However, amid several downside risks, including rising trade tensions between major economies like the United States and China, and heightened trade policy uncertainty, the IMF and WTO now expect global trade growth to slow. Recently introduced restrictive trade policy measures by the United States and some of its major trading partners may already be affecting trade flows and prices in targeted sectors. Analysts claim that some recent policy announcements have also harmed business outlooks and investment plans, due to concern about possible disruption to supply chains as well as the risk that the restrictions may intensify. The Organization for Economic Cooperation and Development (OECD) projects that a further rise in trade tensions may have additional adverse effects on global investment and jobs. U.S. world trade has grown steadily over the past decade. In 2017, the United States exported $2.4 trillion in goods and services and imported $2.9 trillion. Since 2009, when trade flows declined sharply in the midst of the international financial and economic crisis, U.S. exports grew 48.5%, while U.S. imports grew 47.6% in nominal terms. More broadly, since 1960, trade relative to GDP has risen markedly. U.S. exports as a percentage of GDP expanded from 5% in 1960 to over 12% of GDP in 2017, while U.S. imports expanded from 4% to over 15% of GDP. Changing Patterns in U.S. Trade Over the past several decades, the process of globalization has introduced fundamental changes to the U.S. economy. The growing economic weight of emerging market and developing economies is contributing to a realignment of the distribution of power within the global economy and to changes in the direction and composition of U.S trade. Traditionally, the United States and other advanced economies, such as European Union members and Japan, have been the primary sources of world trade flows. While most of the United States' largest trading partners remain advanced economies, U.S. trade with emerging market and developing economies—although comparatively low—accounts for a growing share of total U.S. trade ( Figure 2 and Figure 3 ). The share of U.S. exports to the Middle East and North Africa increased from 3.1% in 2000 to 5.3% in 2017, while the share to South Asia increased from 0.6% to 1.8% during the same time period. The share of U.S. imports from East Asia and the Pacific also grew significantly, from 32.9% in 2000 to 38.9% in 2017. Among the emerging economies, U.S. trade with China has grown the fastest. In 2000, China accounted for about 2.1% of U.S. merchandise exports and 8.1% of U.S. merchandise imports. By 2017, China represented 8.4% of U.S. merchandise exports and 21.4% of merchandise imports. The growing importance of emerging economies is also reflected in U.S. trade in services. Between 2000 and 2017, the share of U.S. services exports to the United Kingdom, Canada, Japan, and Mexico all decreased, while that of China and India increased. During the same time period, the share of U.S. services imports from India grew from 0.9% to 5.2%. In addition, the composition of U.S. trade has also changed since 2000. U.S. exports of petroleum and coal products, oil and gas, and aerospace products and parts have increased, while exports of semiconductors, computer equipment, and motor vehicle parts have decreased significantly ( Table 1 ). Global Value Chains International trade has become increasingly complex, and the changing dynamics of U.S. trade pose both opportunities and challenges for the United States. In the past, U.S. firms tended to source most or all of their production in the United States, using inputs that were largely made domestically. U.S. production, trade, and investments are increasingly organized within so-called global value chains (GVCs) where the different stages of the production process are located across different countries. GVCs mean that products are often traded across borders multiple times. This international fragmentation of U.S. and other countries' production has raised the level of trade associated with a particular final product, as well as trade with both developing and developed countries. Lower global trade barriers and technological advances help to facilitate the growth of GVCs, making international transport faster and accelerating the flow of information across borders. These linkages have blurred the distinction between exports and imports as strictly domestic or foreign activities. This in turn has made it increasingly difficult to understand who benefits and loses from global trade. It also complicates the interpretation of bilateral trade balances. Trade in intermediates means that imports have become essential inputs into the production of exports. As a result, policies that affect a nation's imports ultimately affect its exports and vice versa. More than half of global manufacturing imports are intermediate goods traveling within supply chains, while over 75% of global services imports are intermediate services. The latest data from the OECD suggests that, on average, over 25% of the value of national exports included foreign content in the form of imported inputs. For the United States, the foreign value-added share in U.S. exports has increased in most industries, particularly since the mid-1990s. The Limitations of Trade Data The growth in global production chains, intra-firm trade, and trade in intermediate goods means that traditional accounting methods may distort trade data and not fully reflect the source of resources that are used in producing goods and services. This makes it increasingly difficult to understand and interpret the implications of trade data for the U.S. economy. Thus, it is important to note that the conventional trade data that drives policy discussions, and that is used throughout this report, may underestimate U.S. trade, particularly in services, as the data are not measured on a value-added basis and do not attribute any portion of the traded value of manufactured and agricultural products to services inputs. Intermediate services embedded within a value chain as inputs include not only transportation and distribution to help move goods along, but also research and development (R&D), design and engineering, and business services. China is an example of this phenomenon. Since initiating free market reforms in 1979 and opening up its economy to global trade and investment, China has emerged as a major center for global supply chains.