Eritrea's international trade is characterized by its deficit. The 1998 deficit of $499 million rose to $534 million in 1999, as the value of exports dropped to $26 million against imports of $560 million. Large trade deficits are a clear sign of Eritrea's underdeveloped economy in which the necessity for large-scale imports does not begin to be matched by its output of exportable goods. Imports accounted for a huge 89.7 percent of the GDP in 1998, the same year that an epidemic of cattle disease stopped major livestock exports to Saudi Arabia and Yemen, while drought and the outbreak of war with Ethiopia further decimated local productivity. Although that war ended in June 2000, Eritrea's exports are likely to remain low for a long time because of its devastated farms and infrastructure, its depleted financial resources, and the massive displacement of its population.
The country's main export products are salt, livestock, flour, sorghum, foodstuffs, small manufactures, and textiles. Major imports include foodstuffs, fertilizers, fuel, machinery, spare parts, construction materials, and military hardware. The war brought a sharp increase in military hardware imports, causing state expenditures on defense to jump from 9 percent of the GDP in 1997 to about 44 percent in 1999.
Ethiopia was Eritrea's largest trading partner until 1998, taking 65.8 percent and 64 percent of its total exports in 1996 and 1997. Ethiopia's share dropped to 26.5 percent ($28 million) in 1998 when the countries went to war, but their bilateral trade did not resume when the war was over. Eritrea's other main trading partners are Sudan, Italy, Japan, Saudi Arabia, the United States, Yemen, and the UAE. Sudan was Eritrea's second largest export destination in 1997, taking 17 percent of exports, rising to 27.2 percent in 1998. In 1996 and 1997, Eritrea's main source of imported goods was Saudi Arabia, followed by Italy and the UAE; in 1998, Italy was the most important supplier of imports, followed by the UAE and then Germany.