Survey of Current Business
February 2019
Volume 99, Number 2

U.S. International Transactions

Third Quarter 2018

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The U.S. current-account deficit—a net measure of transactions between the United States and the rest of the world in goods, services, primary income, and secondary income—increased to $124.8 billion (preliminary) in the third quarter of 2018 from $101.2 billion (revised) in the second quarter of 2018 (chart 1 and table A). The deficit was 2.4 percent of current-dollar gross domestic product (GDP) in the third quarter, up from 2.0 percent in the second quarter.

The $23.6 billion increase in the current-account deficit mainly reflected a $24.0 billion increase in the deficit on goods.

Net U.S. borrowing measured by financial-account transactions was $31.3 billion in the third quarter, a decrease from net borrowing of $153.7 billion in the second quarter.

Current-account highlights

  • The deficit on goods increased $24.0 billion in the third quarter to $227.0 billion.
  • The surplus on services decreased $0.1 billion to $68.4 billion.
  • The surplus on primary income decreased $2.9 billion to $59.4 billion.
  • The deficit on secondary income decreased $3.4 billion to $25.6 billion.

Capital-account highlights

Capital transfer receipts were $0.6 billion in the third quarter. The transactions reflected receipts from foreign insurance companies for losses resulting from Hurricane Florence. For information on transactions associated with hurricanes and other disasters, see “How do losses recovered from foreign insurance companies following natural or man-made disasters affect foreign transactions, the current account balance, and net lending or net borrowing?

Financial-account highlights

  • Net U.S. acquisition of financial assets excluding financial derivatives was $132.7 billion in the third quarter, following net U.S. liquidation of $199.9 billion in the second quarter (chart 2).
  • Net U.S. incurrence of liabilities excluding financial derivatives was $151.7 billion in the third quarter, following net U.S. repayment of $63.3 billion in the second quarter.
  • Transactions in financial derivatives other than reserves reflected third-quarter net borrowing of $12.3 billion, a $4.7 billion decrease in net borrowing from the second quarter.

Statistical discrepancy

The statistical discrepancy was $93.0 billion in the third quarter following a statistical discrepancy of −$52.4 billion in the second quarter.

Exports of goods and services and income receipts decreased $6.2 billion, or 0.7 percent, in the third quarter to $930.3 billion (charts 3 and 4 and table B).

  • Goods exports decreased $7.7 billion, or 1.8 percent, to $421.8 billion, mostly reflecting a decrease in foods, feeds, and beverages, primarily soybeans.
  • Primary income receipts decreased $1.8 billion, or 0.7 percent, to $264.5 billion, primarily reflecting a decrease in direct investment income. An increase in portfolio investment income partly offset the decrease. For more information on direct investment income, see “Effects of the 2017 Tax Cuts and Jobs Act on Components of the International Transactions Accounts.”
  • Services exports increased $1.8 billion, or 0.9 percent, to $207.6 billion, mostly reflecting increases in charges for the use of intellectual property, in financial services, and in other business services, primarily professional and management services.

Imports of goods and services and income payments increased $17.4 billion, or 1.7 percent, in the third quarter to $1,055.1 billion (charts 3 and 5 and table C).

  • Goods imports increased $16.3 billion, or 2.6 percent, to $648.8 billion, mostly reflecting increases in consumer goods, primarily cell phones, in industrial supplies and materials, primarily petroleum and products, and in automotive vehicles, parts, and engines.

Acquisition of financial assets

  • Net U.S. acquisition of direct investment assets was $76.8 billion, following net U.S. withdrawal of $68.1 billion in the second quarter (chart 6 and table D). The net withdrawal of direct investment assets in the first half of 2018 reflected U.S. parent repatriation of previously reinvested earnings in response to the 2017 Tax Cuts and Jobs Act (TCJA). For more information, see “Effects of the 2017 Tax Cuts and Jobs Act on Components of the International Transactions Accounts.”
  • Net U.S. liquidation of other investment assets decreased $104.1 billion to $16.6 billion. The decrease in the net liquidation mostly reflected a decrease in the net foreign repayment of loans.
  • Net U.S. purchases of portfolio investment assets were $72.6 billion, following net U.S. sales of $14.3 billion in the second quarter. This change mostly reflected net U.S. purchases of foreign equity and investment fund shares following net sales in the second quarter.

Incurrence of liabilities

  • Net U.S. incurrence of other investment liabilities was $16.9 billion, following net U.S. repayment of $100.4 billion in the second quarter. This change primarily reflected net foreign provision of loans following net U.S. repayment in the second quarter.
  • Net U.S. incurrence of direct investment liabilities increased $105.8 billion to $122.3 billion, mostly reflecting an increase in equity liabilities.
  • Net U.S. incurrence of portfolio investment liabilities decreased $8.1 billion to $12.5 billion. This decrease reflected largely offsetting transactions in U.S. equity and debt liabilities.

In the international transactions accounts, income on equity, or earnings, of foreign affiliates of U.S. multinational enterprises consists of a portion that is repatriated to the parent company in the United States in the form of dividends and a portion that is reinvested in foreign affiliates. At times, repatriation of dividends exceeds earnings, resulting in negative values being recorded for reinvested earnings. For the first half of 2018, dividends exceeded earnings, reflecting the repatriation of accumulated prior earnings of foreign affiliates of U.S. multinational enterprises by their parent companies in the United States in response to the TCJA, which generally eliminates taxes on repatriated earnings. The negative reinvested earnings in the first half of 2018 reflect the fact that U.S. parent companies withdrew accumulated prior earnings from their foreign affiliates. Preliminary statistics for the third quarter show positive reinvested earnings and lower dividends (chart 7 and tables B and E). The reinvested earnings are also reflected in the net acquisition of direct investment assets in the financial account, which was $76.8 billion in the third quarter and −$207.4 billion in the first half of 2018 (table D).

For more information, see “How does the 2017 Tax Cuts and Jobs Act affect BEA's business income statistics?” and “How are the International Transactions Accounts affected by an increase in direct investment dividend receipts?

In addition to the repatriation of accumulated earnings, some companies made other changes to their business practices in reaction to the TCJA. For example, some insurance companies changed how they operate in response to the base erosion and anti-abuse tax (BEAT) provision of the TCJA. BEAT is a tax on certain payments from a U.S. company to a related foreign party, which can include premium payments for reinsurance. In response to the new tax, many U.S. insurance companies terminated these intracompany reinsurance contracts. As a result, premiums paid by U.S. insurers to foreign insurers in the first three quarters of 2018 were $73.9 billion, down from $98.4 billion for the same period in 2017 (table C). Similarly, insurance services imports in the first three quarters of 2018 were $28.8 billion, down from $38.2 billion for the same period in 2017.

For more information on the estimation methods used to compile insurance services, see the insurance section in “U.S. International Economic Accounts: Concepts and Methods.”

The U.S. international transactions statistics for the second quarter of 2018 have been updated to incorporate newly available and revised source data (table F).