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### Abstract

The U.S. agricultural trade surplus has fallen from $26.9 billion in 1996 to$7.3 billion in 2004, and it is shrinking even further in 2005. The objective of this paper is to examine the characteristics of the decreasing agricultural trade surplus and determine the factors causing this decline. U.S. imports from Canada and Mexico have more than doubled under NAFTA, and imports from non-NAFTA countries have also increased considerably. Most increases in imports are consumer-ready and horticultural products. U.S. exports to Canada and Mexico have also been increasing steadily, but exports to other important markets have been stagnant or declining. Much of the declining trade surplus can be accounted for by trade with the European Union. Results from an econometric analysis indicate that an increase in disposable income and free trade agreements have contributed significantly to the increase in U.S. imports of consumer-oriented products. U.S. exports are found to be significantly influenced by per capita income and free trade agreements. Moreover, a strong U.S. dollar is found to have had a negative impact on the value of exports of consumer-oriented products, but not bulk or intermediate products. Results show that exports of bulk and intermediate products have been trending downward while exports of consumer-oriented products and imports of intermediate and consumer-oriented products have been trending upward.