U.S. Current-Account Deficit for Q2 2018 Falls, Tax Reform Repatriating Billions

The U.S. current-account deficit decreased to $101.5 billion (preliminary) in the second quarter (Q2) 2018 from $121.7 billion (revised) in Q1 2018. According to statistics released by the Bureau of Economic Analysis (BEA), the deficit was 2.0% of current-dollar gross domestic product (GDP) in the second quarter, down from 2.4% in Q1.

The $20.3 billion decrease in the current-account deficit reflected a $17.6 billion decrease in the deficit on goods, a $2.5 billion increase in the surplus on services, and relatively small and offsetting changes in the balances on primary income and secondary income.

Exports of goods and services and income receipts rose $28.0 billion in Q2 to $933.3 billion. Goods exports increased $17.8 billion to $429.2 billion, largely fueled by increases in industrial supplies and materials, primarily petroleum and products, and in foods, feeds, and beverages, primarily soybeans.

Primary income receipts rose $3.9 billion to $259.9 billion, largely fueled by increases in portfolio investment income and in other investment income. A decrease in direct investment income partly offset the increases.

Imports of goods and services and income payments rose $7.7 billion in Q2 to $1,034.7 billion. Primary income payments increased $4.2 billion to $199.1 billion, mainly reflecting increases in other investment income and in portfolio investment income. A decrease in direct investment income partly offset the increases.

Secondary income payments rose $2.7 billion to $63.4 billion, largely the result of an increase in U.S. government grants.

Effects of the 2017 Tax Cuts and Jobs Act on Components of the International Transactions Accounts

The Tax Cuts and Jobs Act (TCJA), President Donald Trump’s signature piece of legislation passed without a single Democratic vote, has had several positive impacts. That includes the repatriation of billions of dollars and a reduction in costs operating overseas.

The repatriation of dividends can at times exceed current-period earnings, which results in negative values being recorded for reinvested earnings. With the revised statistics for Q1 2018, earnings were $128.1 billion, with dividends and withdrawals of $294.9 billion and reinvested earnings of −$166.8 billion.

With the preliminary statistics for Q2, earnings were $126.8 billion, with dividends and withdrawals of $169.5 billion and reinvested earnings of −$42.7 billion.

Further, in response to the TCJA, many U.S. insurance companies terminated intracompany reinsurance contracts. As a result, premiums paid by U.S. insurers to foreign insurers in Q1 and Q2 2018, at $24.0 billion and $23.7 billion respectively, were down from $31.4 billion in Q4 2017 and other recent quarters.

Similarly, insurance services imports in Q1 and Q2, at $9.8 billion and $9.2 billion respectively, were down from $12.4 billion in Q4 2017 and other recent quarters.

Updates to First Quarter 2018 International Transactions Accounts Aggregates

Billions of dollars, seasonally adjusted

Next release: December 19, 2018 at 8:30 A.M. EST

U.S. International Transactions, Third Quarter 2018