(What’s Left of) Our Economy: A Deceptively Calm January for U.S. Trade?

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Advanced Technology Products, ATP, Biden, Buy American, Canada, CCP Virus, China, Donald Trump, European Union, exports, Federal Reserve, goods trade, imports, India, Inflation Reduction Act, infrastructure, Japan, Made in Washington trade flows, manufacturing, monetary policy, non-oil goods trade, semiconductors, services trade, stimulus, Taiwan, tariffs, Trade, trade deficit, Ukraine War, Zero Covid, {What's Left of) Our Economy

Pretty calm on the surface, pretty turbulent underneath. That’s a good way to look at yesterday’s official release of the U.S. trade figures for January. Many of the broadest trade balance figures moved little from their December levels, but the details revealed many multi-month and even multi-year highs, lows, and changes – along with one all-time high (the goods deficit with India).

The combined goods and services deficit most strongly conveyed the impression of relatively calm trade waters. It rose sequentially for the second straight month, but only by 1.61 percent, from a downwardly revised $67.21 billion to $68.29 billion.

The trade shortfall in goods narrowed, but by even less – 0.69 percent, from an upwardly revised $90.71 billion to $90.09 billion.

More volatility was displayed by the services trade surplus. It sank for the first time in two months, from upwardly revised $23.50 billion (its highest monthly total since December, 2019’s $24.56 billion – just before the CCP Virs’ arrival stateside) to $21.80 billion. Moreover, this shrinkage (7.26 percent) was the greatest since last May’s 11.05 percent.

Meanwhile, total U.S. exports in January expanded sequentially for the first time since August. And the the 3.41 percent rise, from a downwardly revised $249.00 billion to $257.50 billion was the biggest since April’s 3.62 percent.

Goods exports in January also registered their first monthly increase since August, with the 6.02 percent improvement (from a downwardly revised $167.69 billion to $177.79 billion) the biggest since October, 2021’s 9.09 percent.

Services exports dipped on month in January, from a downwardly revised $81.32 billion to $79.71 billion. And the 1.98 percent decrease was the biggest since last January’s 3.05 percent. But the December total was the highest on record, and the seventh straight all-time high over the preceding nine months, so January could be a mere bump in the services export recovery road.

On the import side, total U.S. purchases from abroad advanced for the second straight month in January, with the 3.03 percent increase (from a downwardly revised $316.21 billion to $325.79 billion standing as the biggest since last March’s 9.64 percent.

Goods imports were up, too – from a downwardly revised $258.40 billion to $267.88 billion. The climb was the second straight, too, and its 3.67 percent growth rate also the biggest since March (11.00 percent).

Services imports in January were up for the first time since September, but by a mere 0.17 percent, from a downwardly revised $57.81 billlion to $57.91 billion.

Also changing minimally in January – the non-oil goods deficit (which RealityChek regulars know can be considered the Made in Washington trade deficit, since non-oil goods are the trade flows most heavily influenced by U.S. trade agreements and other trade policy decision. The 0.32 percent month-to-month decline brought this trade shortfall from $91.97 billion to $91.68 billion.

Since Made in Washington trade is the closest global proxy to U.S.-China goods trade, comparing trends in the two can indicate the effectiveness of the Trump-Biden China tariffs, which cover hundreds of billions of dollars worth of Chinese products aimed at the U.S. maket.

In January, the huge, longstanding U.S. goods trade gap with China widened by 7.01 percent, from $23.51 billion to $25.16 billion. That third straight increase contrasts sharply with the small dip in the non-oil goods deficit – apparently strengthening the China tariffs critics’ case.

Yet on a January-January basis, the China deficit is down much more (30.82 percent) than its non-oil goods counterpart (14.07 percent). The discrepancy, moreover, looks too great to explain simply by citing China’s insanely over-the-top and economy-crushing Zero Covid policies. So the tariffs look to be significantly curbing U.S. China goods trade, too.

U.S. goods exports to China fell for the third straight month in January – by 5.05 percent, from $13.79 billion to $13.09 billion.

America’s goods imports from China increased in January for the second straight month – by 2.55 percent, from $37.30 billion to $38.25 billion.

Revealingly, however, on that longer-term January-to-January basis, these purchases are off by 20.50 percent (from $47.85 billion). The non-oil goods import figure has actually inched up by just 0.71 percent – which also strengthens the China tariffs case.

The even larger, and also longstanding, manufacturing trade deficit resumed worsened in January, rising for the first time in three months. The 2.83 percent sequential increase brought the figure from $113.61 billion – the lowest figure, though, since last February’s $106.49 billion.

Manufacturing exports declined by 3.01 percent, from $105.71 billion to $102.52 billion – the weakest such performance since last February’s $94.55 billion.

The much greater value of manufacturing imports rose fractionally, from $219.31 billlion to $219.36 billion – also near the lows of the past year.

In advanced technology products (ATP), the trade gap narrowed by 11.36 percent in January, from $18.45 billion to $16.35 billion. The contraction was the third in a row, and pushed this deficit down to its lowest level since last February’s $13.42 billion.

ATP exports were down 8.78 percent, from $35.16 billion to $32.07 billion – their lowest level since last May’s $31.25 billion. And ATP imports sank by 9.68 percent, from $53.60 billion to a $48.42 billion total that was the smallest since last February’s $42.44 billion.

Big January moves took place in U.S. goods trade with major foreign economies, though much of this commerce often varies wildly from month to month.

The goods deficit with Canada, America’s biggest trade partner, jumped by 39.02 percent on month in January, from $5.09 billion to $7.07 billion. The increase was the second straight, the new total the highest since last July’s $8.47 billion, and the growth rate the fastest since last March’s 47.61 percent.

But the goods shortfall with the European Union decreased by 10.83 percent, from $18.36 billion to $16.37 billion. The drop was the third straight, the new total the lowet since last September’s $14.44 billion, and the shrinkage the fastest since last July’s 19.97 percent.

For volatility, it’s tough to beat U.S. goods trade with Switzerland. In January, the deficit plummeted 42.07 percent, from $2.28 billion to $1.32 billion. But that nosedive followed a 77.84 percent surge in December and one of nearly 1,200 percent in November (from a $99.9 million level that was the lowest since May, 2014’s $45.3 million).

Also dramatically up and down have been the goods trade shortfalls with Japan and Taiwan. For the former, the deficit plunged by 30.33 percent in January – from $7.09 billion to $4.94 billion. But that drop followed a 20.58 percent increase in December to the highest level since April, 2019’s $7.35 billion.

The Taiwan goods deficit soared by 52.44 percent in January, from $2.80 billion to $3.68 billion. But this rise followed a 33.65 percent December drop that was the biggest since the 43.18 percent of February, 2020 – when the CCP Virus was shutting down the economy of China, a key link of the supply chains of many of the island’s export-oriented manufacturers.

Finally, the goods deficit with India skyrocketed by 106.55 percent in January, from $2.41 billion to that record $4.99 billion. That total surpassed the $4.44 billion shortfall the United States ran up with India last May, but the more-than-doubling was far from a record growth rate. That was achieved with a 146.76 percent burst in July, 2019.

Since the widely forecast upcoming U.S. recession seems likely to arrive later this year (assuming it arrives at all) than originally forecast, the trade deficit seems likely to continue increasing, too. But that outcome isn’t inevitable, as shown by the deficit’s shrinkage in the second half of last year, when America’s economic growth rebounded from a shallow recession.

The number of major wildcards out there remains sobering, too, ranging from the path of U.S. inflation and consequent Federal Reserve efforts to fight it by cooling off the economy, to levels of net government spending increases (including at state and local levels), to the strength or weakness of the U.S. dollar, to the pace of China’s economic reopening, to the course of the Ukraine War. 

On balance, though, I’ll stick with my deficit-increasing forecast, since (1) I’m still convinced that the approach of the next presidential election cycle will prevent any major Washington actors from taking any steps remotely likely to curb Americans’ borrowing and spending power significantly for very long; and (2) I’m skeptical that even the strong-sounding Buy American measures  instituted by the Biden administration (mainly in recently approved infrastructure programs and semiconductor industry revival plans, and in the green energy subsidies in the Inflation Reduction Act) will enable much more substitution of domestic manufactures for imports – least in the foreseeable future.          

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(What’s Left of) Our Economy: 2022 Saw More U.S. Trade Deficits but More Secure Supply Chains

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Advanced Technology Products, ATP, Biden adminstration, Canada, Central America, Dominican Republic, European Union, friendshoring, Germany, Immigration, Japan, manufacturing, Mexico, offshoring, South Korea, supply chains, Taiwan, Trade, Trade Deficits, U.S.-Mexico-Canada Agreement, USMCA, Vietnam, {What's Left of) Our Economy

Sometimes the best-laid plans of mice and men etc etc. So this second look by RealityChek at the final (for now) year-end 2022 official U.S. trade figures is coming out today, rather than yesterday, as I expected.

The big takeaways: First, record deficits were set practically everywhere the eye can see – and on top of sizable increases – when it comes to trade flows in manufacturing, advanced technology products (ATP), and with nearly all of America’s major trade partners (except China, which was covered Friday).

Second, and more encouragingly, regionalization of U.S. trade within the Western Hemisphere kept growing, which is (a) surely making supply chains more secure; and (b) creating more economic opportunity in countries that have long sent the United States large numbers of migrants. In other words, the Biden administration goal of “friendshoring” keeps becoming a thing. 

The biggest absolute numbers were turned in by U.S. manufacturing, which saw its huge, chronic deficit rise by 13.46 percent, from $1.32544 trillion to a twelfth straight record $1.50379 trillion. (Unless otherwise specified, all figures in this post will be in pre-inflation dollars, which are the trade data most closely followed by students of the economy.)

And in context, these figures look just as bad. Although full-year, 2022 results won’t be available until late March, when the pre-inflation manufacturing output numbers come out, as of the third quarter, the manufacturing shortfall stood at 53.09 percent of its value-added production (a measure that avoids significant double counting for complex goods made up of lots of parts and components). That marks the first time this number has topped fifty percent.

Moreover, it could well climb further, since in inflation-adjusted terms, manufacturing output has weakened significantly in the fourth quarter.

The only remotely optimistic development: The growth rate of the manufacturing trade deficit last year slowed from 2021’s 18.84 percent.

The trade gap in advanced technology products widened even faster last year – by 24.58 percent, from $195.95 billion to a sixth consecutive all-time high $244.11 billion.

An even stronger goods trade deficit increase was registered by America’s partners in the United States-Mexico-Canada Agreement (USMCA) – the successor to the North American Free Trade Agreement (NAFTA). This shortfall worsened by 34.12 percent, from $158.19 billion to a second straight record .$212.17 billion.

The most dramatic USMCA deficit change came in U.S-Canada goods trade. Here, the gap soared by 63.14 percent, from $50.03 billion to $81.62 billion. That new record deficit was the highest since 2005’s $78.49 billion..

The goods trade deficit with Mexico surged more slowly – by 20.73 percent. But 2022’s $130.55 billion total was a new all-time high as well, surpassing 2020’s $112.08 billion.

American trade with the European Union (EU) was an exception to the 2022 pattern. The goods shortfall fell by 6.78 percent, from $218.74 billion to $203.91 billion, largely reflecting supercharged American exports of natural gas to the continent to make up for reduced post-Ukraine war Russian supplies.

But the goods deficit with the EU’s largest economy, Germany, increased by 5.44 percent, from $69.88 billion to $73.69 billion.

Turning to U.S. goods trade with Asia, the deficit with Japan grew by 12.80 percent on year, from $60.30 billion to $68.01 billion.

The gap with South Korea jumped by 51.39 percent, from $28.98 billion to a third straight record $43.87 billion.

In swelling by 19.65 percent, from $40.23 billion to $48.13 billion, the goods shortfall with Taiwan set recorded its fourth consecutive all-time high.

And consistent with its growing role as an alternative to offshoring export-oriented production to China, the U.S. goods deficit with Vietnam ballooned by 27.77 percent, setting a thirteenth straight record in the process.

At the same time, these geographic trade statistics show that despite the emergence of Asia altenatives to China, U.S. goods trade is becoming increasingly concentrated within the Western Hemisphere.

Between 2021 and 2022, two-way U.S. goods trade with Canada and Mexico combined as a share of total U.S. goods trade rose from 28.76 percent to 29.33 percent. And in 2019, the last full-year before the pandemic’s arrival state-side, this share was just 25.71 percent.

The numbers for Dominican Republic and Central America are much smaller but the trends more dramatic. Between 2021 and 2022, their share of total U.S. goods trade improved from 5.25 percent to 5.34 percent, but since 2019, it’s way up from 1.23 percent.   

 

(What’s Left of) Our Economy: The U.S. Trade Deficit Falls Again — For the Wrong Reasons

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Advanced Technology Products, ATP, Canada, CCP Virus, China, coronavirus, currency, euro, Eurozone, exchange rates, exports, goods trade, imports, Japan, lockdowns, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, services trade, trade deficit, Vietnam, yen, zero covid policy, {What's Left of) Our Economy

As of this morning’s official data, May makes two straight months during which the total U.S. trade deficit has fallen. The last time that’s happened? The second half of 2019, and then, the shortfall dropped sequentially six consecutive times – between June and November.

Normally such declines would be good news. But of course, these times still aren’t normal thanks to the lingering effects of the CCP Virus and more recently to the Ukraine War. And indeed, back in 2019, this trade gap narrowing took place as economic growth was slowing moderately, but the post-financial crisis expansion was nonetheless continuing. The more recent improvement is likely coming, as often happens, while the economy likely has slipped into recession.

The new Census Bureau release shows that right after it tumbled sequentially in April by a whopping 19.47 percent (a little more than first reported), the combined goods and services trade deficit shrank by another 1.32 percent in May, from $86.69 billion to $85.55 billion. For good measure, this shortfall was the lowest since December’s $78.87 billion.

The gap narrowed because exports advanced respectably and imports rose more sluggishly – a bit of encouraging news, especially considering the dollar’s recent strength (which by itself boosts the prices of U.S. goods and services both at home and abroad versus the foreign competition), and the many weak and/or weakening economies overseas (which increases the pressure they feel to grow by exporting to stronger and/or more open economies).

Even so, combined goods and services exports climbed by 1.20 percent on month in May, from an upwardly revised $252.85 billion to $255.89 billion – their fourth straight monthly record.

Overall imports, however, grew by just 0.56 percent – from a downwardly revised $339.54 billion to $341.44 billion.

The goods trade deficit sank by 2.65 percent sequentially in May, from an upwardly revised $107.82 billion to $104.96 billion – which, as with the overall trade gap was the best monthly level since December ($100.52 billion).

Unfortunately, in May the big services trade surplus that the United States has run for so long dropped sequentially for the first time in three months – and by 8.52 percent, from an upwardly revised $21.13 billion to $19.41 billion.

Goods exports were up 1.71 percent month to month in May, from a downwardly revised $176.02 billion to fourth straight all-time high of $179.03 billion.

Services exports rose, too, and to their second straight all-time high. But the increase was only 0.05 percent, from an upwardly revised $76.52 billion to $76.83 billion.

Goods imports also increased on month in May by just 0.05 percent, from $283.84 billion to $283.99 billion.

But services imports in May grew much faster – by 3.15 percent, from a downwardly revised $55.70 billion to a fourth straight monthly record of $57.46 billion.

The non-oil goods trade deficit is known to RealityChek regulars as the Made in Washington trade deficit, because by stripping out figures for oil (which trade diplomacy usually ignores) and services (where liberalization efforts have barely begun), it stems from those U.S. trade flows that have been heavily influenced by trade policy decisions.

In May, this shortfall was down 3.43 percent sequentially, from an upwardly revised $108.47 billion to $104.68 billion. That’s the lowest monthly total since February’s $103.29 billion.

No such luck with America’s enormous and persistent manufacturing trade deficit. It rose month to month in May by 6.58 percent, from $124.41 billion to a $132.60 billion level that was the second worst of all-time after March’s $142.22 billion.

U.S. exports of manufactures increased sequentially in May by 2.55 percent. And the new $112.15 billion in such sales was their second best ever, after March’s $113.96 billion.

But the much greater amount of manufacturing imports jumped by 4.82 percent, to $244.75 billion – another second best ever (after March’s $256.18 billion).

On a year-to-date basis, the manufacturing deficit is running 24.07 percent ahead of last year’s total, ($504.94 billion to $626.48 billion) which almost guarantees that this shortfall will hit its eleventh straight all-time high, in the process topping last year’s $1.3298 trillion.

Manufactures exports year-to-date have risen by 15.87 percent, but imports have surged by 20.01 percent.

The trade deficit in Advanced Technology Products (ATP) worsened in May as well, advancing 11.94 percent on month to $20.48 billion. ATP exports dipped by 0.71 percent, but imports were up by 3.94 percent.

Given the prominence of both manufactures and Advanced Technology Products in U.S.-China trade, it’s no surprise that as their global trade gaps widened in May, so did the U.S. goods deficit with the People’s Republic. Also at work on all these fronts: the partial easing of the Zero Covid policy-induced lockdowns that halted so much economic activity in China this spring.

The China goods shortfall rose by 3.18 percent, from $30.57 billion to $31.54 billion. And in a continuing departure from a recent pattern, this growth contrasted with the aforementioned 3.43 percent drop in the non-oil goods deficit that’s its closest global proxy.

For most of the time since the Trump tariffs on China started being imposed in 2018, the goods deficit with the People’s Republic actually had been falling while that Made in Washington gap kept growing, suggesting that the former President’s ongoing trade curbs had been achieving a major stated goal. On a year-to-date basis, the China deficit is still up slightly less (26.23 percent) than the Made in Washington deficit (27.56 percent). But clearly the difference between the two is shrinking.

One entirely possible reason is that China has devalued its controlled currency versus the dollar by 5.45 percent since the end of last year – which of course cheapens the price of Made in China products for reasons having nothing to do with free trade or market forces, and which suggests that rather than thinking about cutting or eliminating tariffs on these products, President Biden should be mulling some increases.

For May, U.S. goods exports to China improved sequentially by 9.99 percent, from $11.20 billion to $12.32 billion, while imports grew by 5.01 percent, from $41.77 billion to $43.86 billion.

In other May developments with major U.S. trade partners:

>The U.S. goods deficit with Canada soared by 35.84 percent on month, from $7.25 billion to $9.84 billion. That total was the second biggest ever after the $9.88 billion recorded back in July, 2008;

>A new record was set by the goods gap with Vietnam, and in fact, May’s $10.66 billion figure was the third new all-time high in the last three months and the fourth this year. These results largely reflect Vietnam’s mounting attractiveness versus China as a destination for export-focused foreign investment – in part due to the Trump tariffs and in part due to all the worsening difficulties of doing business in China;

>The goods deficit with the eurozone was up 8.08 percent, and worse is likely to come as the single currency keeps weakening versus the dollar and Europe, too, seems heading into or is already mired in a new recession;

>But despite the continuing weakening of the yen, the goods deficit with Japan fell by 6.86 percent. The ongoing global semiconductor shortage still plaguing the auto industry in particular looks like a big culprit here.

(What’s Left of) Our Economy: A Terrible March for U.S. Trade – With Worse Likely to Come

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Advanced Technology Products, Canada, China, currency, dollar, European Union, exchange rates, exports, Federal Reserve, goods trade, imports, inflation, Japan, Made in Washington trade deficit, manufacturing, Mexico, oil, services trade, Trade, trade deficit, {What's Left of) Our Economy

So many records (mainly the wrong kind) were revealed in the latest official monthly U.S. trade figures (for March) that it’s hard to know where to begin. Some important points need to be made before delving into them, though.

First, don’t blame oil. Sure, this trade report broke new ground in containing a full month’s worth of Ukraine war-period data. But despite the disruption in global energy markets triggered by the conflict, on a monthly basis, the U.S. petroleum balance actually improved sequentially, from a $2.94 billion deficit to a $1.58 billion surplus on a pre-inflation basis (the trade flow gauges from these monthly government releases that are most widely followed)

And even on an inflation-adjusted basis, February’s $8.73 billion oil deficit shrank to $5.15 billion in March.

Second, don’t blame inflation much at all. The Census Bureau doesn’t report after-inflation service trade results on a monthly basis, but it does provide this information for goods (which comprise the great majority of U.S. trade flows). And the March figures show that before factoring in inflation, the goods trade deficit worsened by 18.89 percent from $107.78 billon in February to a new record $128.14 billlion, whereas when inflation is counted, this gap widened on month by 18.86 percent, from $115.96 billion in February to $137.83 billion in March. (Major trade wonks will note that these goods and services data are presented according to two different counting methods, but trust me: the difference in results is negligible.)

Third, don’t blame China. The March pre-inflation goods deficit with the People’s Republic was up sequentially from $42.26 billion to $47.37 billion (12.10 percent). But neither that absolute level nor the rate of increase was anything out of the ordinary, much less a record. In fact, the monthly percentage increase was just half the rate of that of the shortfall for total non-oil goods (a close worldwide proxy for China goods trade) – which hit 24.06 percent. One big takeaway here: the Trump China tariffs are still exerting a major effect, along of course with the supply chain knots Beijing has created with its over-the-top Zero Covid policy.

But regardless of where the blame lies, (and it looks like major culprits are continued strong U.S. spending on both consumer goods and capital equipment, combined with an improvement of the supply chain situation outside China), all-time highs and worsts abounded in the March trade report, include worsenings at record paces.

The combined goods and services trade deficit jumped on-month by 22.28 percent, to $109.80 billion. That total was the third straight record for a single month and the increase the fastest since the 43.71 percent explosion in March, 2015 – a month during which much of the country was recovering from severe winter weather.

As mentioned above, the $128.14 billion goods trade gap was the highest ever, too, topping its predecessor (January’s $108.60 billion) by 17.99 percent. As for the 18.89 percent monthly increase, that was also the biggest since March, 2015 (25.18 percent).

Even a seeming trade balance bright spot turns out to be pretty dim. The headline number shows the service trade surplus improving by 1.96 percent – from $17.98 billion to $18.34 billion. Unfortunately, nearly all of this increase stemmed from a big downward revision in the initially reported February surplus, from $18.29 billion.

As known by RealityChek regulars, the aforementioned non-oil goods trade deficit can also be called the Made in Washington trade deficit – because by stripping out figures for oil (which trade diplomacy usually ignores) and services (where liberalization efforts have barely begun), it stems from those U.S. trade flows that have been heavily influenced by trade policy decisions.

And not only was the March Made in Washington deficit’s monthly increase of 24.06 percent the second fastest ever (after March, 2015’s 31.24 percent). The March, 2022 level of $128.70 billion was the biggest ever.

The story of the non-oil goods trade gap’s growth was overwhelmingly a manufacturing story. The sector’s huge and chronic trade shortfall shot back up from $106.49 billion in February (which was a nice retreat from January’s $121.03 billion) to a new record $142.22 billion. And the monthly percentage jump of 33.55 percent was the biggest since the 37.62 percent during weather-affected March, 2015.

Manufactures exports advanced sequentially by a strong 20.53 percent this past March. That topped the previous all-time monthly high of $105.37 billion (set back in October, 2014), by 8.15 percent. But the much greater volume of imports skyrocketed by 27.43 percent. And their $256.18 billion total smashed the old record of $222.79 billion (from last December) by 14.98 percent.

Within manufacturing, U.S. trade in advanced technology products (ATP) took a notable beating in March, too. The $23.31 billion trade gap was an all-time high, and its 73.65 percent monthly growth the worst since the shortfall slightly more than doubled on month in March, 2020 – as the Chinese economy and its huge electronics and infotech hardware manufacturing bases reopened after the People’s Republic’s initial pandemic wave.

Yet as noted above, despite these extaordinary manufacturing and ATP trade numbers, the latest March numbers for manufacturing-heavy U.S. China trade were anything but extraordinary. U.S. goods exports to the People’s Republic increased on-month by 15.36 percent – slower than the rate for manufactures exports globally, but the fastest rate since the 52.47 percent rocket ride they took  last October.

Goods imports from China, however, rose much more slowly from February to March than manufactures imports overall – by just 12.10 percent, from $42.26 billion to $47.37 billion.

When it comes to other major U.S. trade partners, the March American goods deficit with Canada of $8.03 billion was the highest such total since July, 2008 ($9.88 billion). It was led by a 30.81 percent advance in imports reflecting the mid-February reopening of bridges between the two countries that had been closed due to CCP Virus restrictions-related protests.

The goods deficit with Mexico worsened even faster – by 35.11 percent, to $11.92 billion. That total was its highest since August, 2020’s $12.77 billion.

Another major monthly increase (31.59 percent) was registered by the U.S. goods shortfall with the European Union, but its March level ($16.87 billion) was subdued relative to recent results.

Anything but subdued was the Japan goods shortfall, which shot up sequentially in March by 49 percent. The $6.77 billion total also was the biggest since November, 2020’s $6.78 billion, and the monthly jump the greatest since the 84.37 percent burst in July, 2020, during the rapid recovery from the sharp U.S. economic downturn induced by the first wave of the CCP Virus and related economic and behavior curbs.

The Europe and Japan trade figures stem significantly from a development that’s bound to turn into an increasingly formidable headwind for the U.S. trade balance for the foreseeable future – the dollar’s rise versus other leading currencies to levels not seen in 20 years. And unless it’s reversed substantially soon, China’s latest currency devaluation, which began in mid-April, will weaken the effects of both the Trump tariffs and the Zero Covid policy. So even if the Federal Reserve’s (so far modest) inflation-fighting efforts do slow the American economy significantly, it’s likely that, as astronomical as the March trade deficits were, we ain’t seen nothin’ yet.

(What’s Left of) Our Economy: November Was an Awfully Cruel Month for U.S. Trade

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Advanced Technology Products, Canada, CCP Virus, Census Bureau, China, coronavirus, COVID 19, European Union, exports, Federal Reserve, goods trade, imports, inflation, Japan, manufacturing, non-oil goods trade deficit, Omicron variant, services trade, stimulus, supply chains, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

So maybe the global and especially U.S. supply chain snags of the last year are finally unraveling? That could well be a message being sent by this morning’s official release on American trade figures for November – which was dominated by huge increases in the nation’s goods imports, often to record levels.

Interestingly, though, little of this surge in goods from abroad came from China – probably reflecting some combination of the continuing effects of the Trump (and now Biden) tariffs, the ongoing semiconductor shortage that creates outsized problems for a country so reliant on electronics exports, and widespread power outages stemming from tight coal supplies.

Today’s report from the Census Bureau showed that the overall U.S. trade deficit swelled sequentially from $67.16 billion in October (the smallest since April’s $66.15 billion) to $80.17 billion. That total was the second largest ever (after September’s $81.44 billion). In addition, the 19.38 percent monthly increase was the most since July, 2020’s 19.87 percent. (The worst all-time relative month-to-month increase was 44.12 percent way back in December, 1996, when U.S. trade flows were much smaller, and therefore percentage increases much easier to generate.)

The November goods deficit of $98.99 billion was a record (topping the previous $97.83 billion all-time high of September), and the18.04 percent increase over October’s $83.86 level was the second greatest ever (after the 25.18 percent spurt of March, 2015 that resulted largely from a recovery after the previous month’s harsh winter weather).

Although November’s petroleum trade deficit more than quadrupled on month (to a still-modest $1.07 billion), the month’s shortfall in non-oil goods – the trade flows most influenced by U.S. trade policy decisions – soared by 17.06 percent, to $96.97 biillion. That total is a new record (eclipsing September’s $93.67 billion), and the increase was the biggest since the record 31.24 percent also set in March, 2015.

The roughly $13 billion absolute monthly rise in the November overall trade deficit resulted entirely (and then some) from combined goods and services imports, which were up $13.44 billion. The month’s $304.89 billion total was a second straight record (besting October’s $291.04 billion), and the 4.60 percent increase the biggest since March’s 7.18 percent. (The record relative total monthy import incease was July, 2020’s 10.58 percent.)

The story was similar in goods imports. They, too, set a second straight record, with the $254.93 billion level 5.05 percent higher than October’s previous all-time high of $242.67 billion, and the rate of increase the fastest since March’s 7.73 percent. (This record, too, was set in July 2020 – at 11.93 percent).

Continuing November’s string of consecutive all-time highs was the non-oil goods category of imports. At $232.30 billion, these purchases broke October’s previous record of $221.82 billion by 4.73 percent, a relative rise that was the fastest since March (7.12 percent). Their fastest increase came in July, 2020, too (11.88 percent). 

As indicated earlier, though, goods trade with China departed from this pattern. These imports advanced as well – but by just 0.73 percent. Their $48.39 billion level was the year’s highest, but only slightly above October’s $48.03 billion. Moreover, though elevated, these inflows fell short of the record $52.08 billion in October, 2018 – when U.S. companies were “front-running” their China purchases to bring them into the country before steep tariffs kicked in.

Moreover, the $32.32 billion goods deficit with China was far from the high for the year (September’s $36.50 billion), much less anywhere close to the monthly record ($42.89 billion, which also came in October, 2018).

So geographically speaking, where did U.S. goods deficits go up the most month-to-month in November? Among the nation’s biggest trade partners, Canada was the biggest culprit percentage-wise. America’s $6.12 billion of goods purchases from its northern neighbor were the most of 2021 and the biggest such total since September, 2008’s $7.36 billion. And the sequential leap of 60.67 percent (which, to be fair, followed a big October decline of 26.09 percent) was the fastest since January, 2021’s 74.04 percent surge.

The goods deficit with the European Union was up 28.59 percent sequentially in November to a record $20.85 billion. The increase, moreover, was the greatest since the 73.82 percent rate of March, 2020, as Europe was climbing out of its first CCP Virus wave.

And the goods gap was up by 17.74 percent with Japan to $4.16 billion. The total was the year’s second lowest (after February’s $4.02 billion) but the increase was the fastest since July’s 27.43 percent (though it followed a 23.21 percent plunge in October).

Turning to specific products, more new trade records came in the manufacturing sector. The November trade deficit for industry hit a new all-time high of $124.06 billion – a total that broke the old mark (September’s $118.75 billion) by 8.06 percent. Manufacturing exports sank sequentially in November by 4.15 percent, from $102.752 billion to $98.488 billion, and the 2.29 percent increase in manufacturing exports brought them to their second straight monthly worst – $222.553 billion.

With one month left in data year 2021, the manufacturing trade deficit stands at $1.209 trillion, and is running 11.63 percent ahead of 2020’s record rate.

Not that the records stop with manufactures. In Advanced Technology Products, imports of $52.52 billion set their third staight all-time high, and the November deficit of $21.76 billion trailed only November, 2020’s $21.90 billion in this data series’ 33-year history.

One positive all-time trade high was set in November: At $224.22 billion, total exports established their second record monthly total. But the monthly improvement was a measly 0.16 percent.

November’s $155.94 billion worth of goods exports were the second highest monthly total on record – but the level was down 1.81 percent sequentially.

The pandemic-beleaguered services sector delivered some good trade news, too. Its longstanding trade surplus remains low by historic standards, but did climb by 12.68 percent, to $18.82 billion. The increase was the fastest since the 28.08 percent recorded in September, 2004 (when services trade flows were much smaller than today’s), and the total was the best since June’s $20.33 billion.

Services exports enjoyed a strong November, too. They hit $68.27 billion, for their highest mark since the $69.12 billion reached in February, 2020 – just before the pandemic arrived in the United States and began seriously distorting its trade flows and entire economy. Further, the 4.97 percent improvement was the best since January, 2002’s 5.56 percent.

Will November prove to be the cruelest month – at least for the time being – for U.S. trade? A further removal of supply chain bottlenecks and the huge savings still amassed by American consumers say “No.” But the opposite conclusion could easily be reached by pointing to a reduction in the Federal Reserve’s economic stimulus programs, the unlikelihood of Congress approving big spending bills during this midterm election year, and still lofty inflation rates – which at some point will produce a consumer pullback.

The impact of the CCP Virus, it’s highly infectious Omicron variant, and possible future strains? Those are the $64,000 questions that trade and economic policy analysis may well find excruciatingly difficult to answer.

(What’s Left of) Our Economy: How to Really Make Trade Fair

Tags

automotive, BBB, Biden administration, bubbles, Build Back Better, Canada, consumption, Donald Trump, electric vehicles, EVs, fossil fuels, manufacturing, Mexico, NAFTA, North America, production, tax breaks, Trade, U.S.-Mexico-Canada Agreement, USMCA, {What's Left of) Our Economy

There’s no doubt that the next few weeks will see a spate of (low-profile) news articles on how unhappy Canada and Mexico are about proposed new U.S. tax credits for purchasing electric vehicles (EVs) and how these measures could trigger a major new international trade dispute.

There’s also no doubt that any such disputes could be quickly resolved, and legitimate U.S. interests safeguarded, if only Washington would finally start basing U.S. trade policy on economic fundamentals and facts on the ground rather than on the abstract and downright childishly rigid notions of fairness that excessively influenced the approach taken by Donald Trump’s presidency.

The Canadian and Mexican complaints concern a provision in the Biden administration’s Build Back Better (BBB) bill that’s been passed by the House of Representatives but is stuck so far in the Senate. In order to encourage more EV sales, and help speed a transition away from fossil fuel use for climate change reasons, the latest version of BBB would award a refundable tax break of up to $12,500 for most purchases of these vehicles.

The idea is controversial because the administration and other BBB supporters see these rebates as a great opportunity to promote EV production and jobs in the United State by reserving his subsidy for vehicles Made in America. (As you’ll see here, the actual proposed rules get more complicated still – and could change some more.) And according to Canada and Mexico, this arrangement also violates the terms of the U.S.-Mexico-Canada-Agreement (USMCA) governing North American trade that replaced the old NAFTA during the Trump years in July, 2020.

Because USMCA largely reflects those prevailing concepts of global economic equity, Canada and Mexico probably have a strong case. But that’s only because this framework continues classifying all countries signing a trade agreement as economic equals. Even worse, there’s no better illustration of this position’s absurdity is the economy of North America.

After all, the United States has always accounted for vast majority of the continent’s total economic output and therefore market for traded goods. According for the latest (2020) World Bank figures, the the United States turned out 87.51 percent of North America’s gross product adjusted for inflation. And when it comes to new car and light truck sales, the U.S. share was 84.24 percent in 2019 (the last full pre-pandemic year, measured by units, and as calculated from here, here, and here).

But in 2019, the United States produced only 68.88 percent of all light vehicles made in North America (also measured by units and calculated from here, here, and here.) Moreover, more than 70 percent of all vehicles manufactured in Mexico were exported to the United States according to the latest U.S. government figures. And for Canada, the most recent data pegs this share at just under 54 percent (based on and calculated from here and here).

What this means is that, without the American market, there probably wouldn’t even be any Canadian and Mexican auto industries at all. They simply wouldn’t have enough customers to reach and maintain the production scale needed to make any economic sense.

So real fairness, stemming from the nature of the North American economy and the North American motor vehicle industry, leads to an obvious solution: Give vehicles from Canada and Mexico shares of the EV tax credits that match their shares of the continent’s light vehicle sales – just under 16 percent.

Therefore, using, say, 2019 as a baseline, from now on, the first just-under-16 percent of their combined light vehicle exports to the United States would be eligible for the credits for each successive year, and the rest would need to be offered at each manufacturer’s full price (a pretty plastic notion in the auto industry, I know, but a decision that would need to be left to whatever the manufacturers choose).

Nothing in this decision would force Canada or Mexico to subject themselves to these requirements; they would remain, as they always have been, completely free to try to sell as many EVs as they could to other markets (including each other’s).

What would change dramatically, though, is a situation that’s needlessly harmed the productive heart of the U.S. economy for far too long, resulting from trade agreements that lock America into an outsized consuming and importing role, but an undersized production and exporting role. In other words, what would change dramatically is a strategy bearing heavy responsibility for addicting the nation to bubble-ized growth. And forgive me for not being impressed by whatever legalistic arguments Mexico, Canada, any other country, or the global economics and trade policy establishments, are sure to raise in objection.

Our So-Called Foreign Policy: Biden’s Anti-China Coalition is Flunking an Olympian Test

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allies, Australia, Beijing Olympics, Biden, boycotts, Canada, China, European Union, Germany, Indo-Pacific, Italy, Japan, multilateralism, Our So-Called Foreign Policy, semiconductors, South Korea, Taiwan, United Kingdom, Winter Olympics

One of President Biden’s main foreign policy aims has been to create an international coalition to resist continually mounting belligerence by China, and to curb the massive, decades-long flows of foreign capital and technological knowhow that have done so much to strengthen and enrich the People’s Republic. And whatever promise is held by this anti-China strategy has become vitally important lately because of Beijing’s intensifying intimidation campaign against Taiwan, whose autonomy has become a vital U.S. interest due to its world leadership in semiconductor manufacturing processes.

That’s why it’s so discouraging to report that, as of this morning, so few of the allies on which Mr. Biden is counting have been willing even to take so limited a step as joining the U.S. diplomatic boycott of the Winter Olympics scheduled to be held in China’s capital Beijing in February.

Australia and the United Kingdom signed on this morning. And a bit later, so did Canada. But so far, that’s it. According to this Reuters article, Japan is considering not sending cabinet members to the Games but South Korea isn’t even thinking about this step. The New York Times reports that New Zealand had previously decided not to send any officials to China but cited CCP Virus-related health concerns as the reason; that the European Union’s (EU) European Parliament has passed a resolution backing a boycott barring “verifiable improvement” in China’s human rights situation, but one that’s non-binding; that the EU’s separate policymaking arm has declined to support the U.S. action; EU member France is hiding behind this EU skirt so far; fellow EU member Italy has said it’s not on board; and Olaf Scholz, the new leader of another EU member, Germany, clearly doesn’t want to be.

It’s not that joining the American initiative will produce any meaningful changes in China’s behavior. Indeed, official foreign participation in and attendance at Olympics isn’t exactly the norm.

It’s true, moreover, as The Times mentioned, that many of these countries and the EU collectively have imposed human rights sanctions on China; that some have begun thinking about how to shield their economies from Beijing’s power and influence (see, e.g., here and here); and that some have begun to increase their own defense spending in response to China’s own buildup and provocations (see, e.g., here and here), or become more active militarily in the Indo-Pacific region (see, e.g., here).

At the same time, boosting military budgets and even sending warships on port calls and other East Asian missions is a far cry from credibly pledging to come to the U.S.’ and Taiwan’s aid if China moves against the island. (It’s also important to note that an American military response, or at least a prompt one, is far from certain, either, since the United States is not yet obliged by treaty to come to Taiwan’s defense.)

And if countries are reluctant to take even a symbolic step like diplomatically boycotting the Beijing Olympics, which doesn’t even entail further sanctions, can they really be counted on to enter hostilities against China?

President Biden is fond of saying that “America is back” in its role as free world leader following an alleged Trump administration abdication. But leaders by definition need followers, and when it comes to confronting China meaningfully, it’s not clear right now that he has many that are reliable.

(What’s Left of) Our Economy: Another U.S. Trade Deficit Surge on the Way?

Tags

Biden administration, Canada, CCP Virus, China, coronavirus, COVID 19, Delta variant, exports, goods trade, imports, lockdowns, manufacturing, manufacturing trade deficit, merchandise trade, semiconductors, services trade, South Korea, Taiwan, tariffs, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

A day after the Biden administration began laying out its “strategic vision” for trade policy toward China (which looks an awful lot like the tariff-heavy Trump administration policies decried by candidate Biden), this morning’s latest official U.S. monthly trade figures reminded that the predatory People’s Republic is hardly the only obstacle to an improved national trade performance.

Some of the distorting effects of the stop-start nature of the CCP Virus-era U.S. and global economies can be seen in the statistics. Principally, the last three data months have seen a month-on-month increase in the overall U.S. deficit in June, a decrease in July, and the rebound reported in today’s August release.

At the same time, through May, the growth of this total goods and services deficit was pretty sluggish. Since June, though, it’s remained above $70 billion for three straight months. (as will be detailed below).

At least as troubling – the rates of change in trade deficit increases and decreases, and in the economy’s rates of growth and shrinkage never match up exactly in the short run, because of lag times between orders and the receipt of supplies of traded goods in particular. But it’s not good news that whereas the U.S. economy grew at after-inflation annual rates topping six percent in each of the first and second quarters (ending in June) while the trade gap’s growth was pretty sluggish, third quarter growth could well be much slower (see, e.g., here), and the trade deficit seems to be settling in at higher levels.

To return to the China data – not that they were good. The S$31.74 billion U.S. merchandise deficit with the People’s Republic was the biggest monthly total since July, 2019’s $32.68 billion, and was up sequentially by 10.79 percent. Goods imports rose 6.51 percent on month to just under $43 billion for their highest level since last November. But merchandise exports sank month-to-month by 3.94 percent, to $11.26 billion – their lowest level since February.

Even so, the August trade report showed again that, longer term, the Trump tariffs are bringing and keeping America’s huge and longstanding China goods trade gap under control. Specifically, this deficit is up 13.65 percent year-to-date – much more slowly than the closest global proxy, America’s non-oil goods deficit (19.11 percent).

As for the headline U.S. combined goods and services trade deficit, it rose in August by 4.19 percent, from a slightly upwardly revised $70.30 billion to a new record $73.25 billion.

The merchandise trade shortfall increased, too – but by just 1.82 percent sequentially. And the $89.41 billion total, while high by historic standards, still trailed the $93 billion-plus top-two levels hit in March and June (the latter’s $93.26 billion remaining the record).

The August services trade surplus of $16.16 billion, however, was the lowest since December, 2011, and fell by 7.74 percent from July.

Several other records were set by the August results in the broadest U.S. trade flow categories. On the negative side, total U.S. imports hit an all-time high of $286.99 billion during the month, as did goods imports ($239.11 billion). But at $149.69 billion, August goods exports hit their second consecutive historical best.

And speaking of records, manufacturing’s $116.88 billion trade shortfall represented another. The August total was 5.76 percent greater than July’s $110.05 billion and exceeded the previous all-time worst (June’s $114.06 billion by 2.47 percent).

Delving more deeply into the manufacturing numbers, industry’s exports did improve by 1.95 percent sequentially, from $95.22 billion to $97.13 billion. But the much greater amount of imports jumped more than twice as fast – by 4.03 percent, from $205.72 billion to $214.01 billion.

On a January-August basis, the manufacturing deficit has ballooned by 23.77 percent, from $686.36 billion to $849.50 billion – making a fourth straight trillion-dollar trade gap for industry all but certain.

Year-to-date, manufacturing exports have grown by 19.28 percent, but imports remain more than twice as great, and they’ve swelled by 21.64 percent.

Some more records and notable results:

>At $3.73 billion, the August goods trade deficit with global semiconductor manufacturing superpower Taiwan set a fifth straight monthy record.

>The merchandise gap with South Korea, another leading semiconductor manufacturer, soared by 51.18 percent to $3.15 billion – its third highest total all-time.

>And the goods shortfall with Canada, America’s third largest goods trade partner (after the European Union and China, respectively) surged 24.48 percent, to a $5.33 billion level that was the loftiest monthly amount since October, 2008 ($5.65 billion).

The bear case for the trade deficit is easy to identify: For example, if it’s been rising even as the CCP Virus’ highly contagious Delta variant and related economic and behavior curbs are depressing growth, it’s sure to rise higher and faster as the Delta wave keeps showing signs of weakening, and growth picks up again. Further, whenever unsnarling begins of the kinds of logistical snags that have disrupted supplies of semiconductors and created long backups at ports on America’s West Coast and elsewhere, U.S. imports in particular will rise even more rapidly.

The bull case seems to depend mainly on the winding down domestically and internationally of the virus – which will help America’s trade partners finally to start catching up with the United States recovery-wise, and therefore to step up net buys of U.S. imports. (See, e.g., here.) There are also the arguments that supply chain normalization will help restore domestic U.S. business’ export potential; and that the Biden administration has just made clear that the vast bulk of the steep and sweeping Trump China tariffs will remain in place for the foreseeable future – which will keep pricing enormous amounts of imports from China out of the U.S. market.

At this point, the fence looks like the safest place to be analytically, as has often been the case for the pandemic economy. So that’s where I’ll sit regarding future prospects for the trade deficit – but leaning a little toward the bearish side for now.

(What’s Left of) Our Economy: More of the (Wrong Kind of) Records in the New U.S. Trade Figures

Tags

Canada, CCP Virus, China, coronavirus, COVID 19, Delta variant, Donald Trump, Europe, exports, goods trade, imports, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, services trade, Taiwan, tariffs, Trade, trade deficit, trade policy, trade war, Wuhan virus, {What's Left of) Our Economy

About a week ago, I wrote here that the new (second quarter) figures on U.S. economic growth displayed some tentative signs of pre-pandemic normality returning to the nation’s CCP Virus-disrupted trade flows. This morning’s release of the detailed official U.S. trade figures for June reveals that those signs (which came from the inflation-adjusted numbers) were awfully tentative, and that pandemic distortions remain the order of the day.

Indeed, the June trade data brought to an end for the time being the pattern this calendar year of the total U.S. deficit and goods shortfall statistics stabilizing on a monthly basis, along with the crucial non-oil goods gap data. As known by RealityChek regulars, those trade flows can be called the “Made in Washington” portion of U.S. trade, since they make up the category of imports and exports whose levels and changes are most influenced by U.S. trade policy. In that way, they differ from oil trade (which is almost never the subject of trade negotiations and other policy decisions) and services trade (where liberalization efforts worldwide have made only modest progress). Moreover, manufacturing trade in June exhibited the same discouraging characteristics. 

There is one important exception to June’s trend break: The China goods deficit and goods import numbers changed only slightly (for the worse). In fact, they’ve stayed in the same neighborhoods since China’s export-heavy economy rebounded from its own virus-induced shutdown in early 2020. These results look like strong indicators that the Trump tariffs have played major roles in reducing the harm done to the U.S. economy by Beijing’s predatory trade practices. So does the resilience throughout the pandemic shown by U.S. domestic manufacturing – since industry dominates Sino-American trade flows.

But the trade records set in June remain noteworthy. After staying right around $70 billion on average since January (with the exception of a brief March move to just over $75 billion), the combined goods and services shortfall rose 6.70 percent,from $70.99 billion in May to $75.75 billion in June – an all-time high that broke the record set in March.

Since goods make up the great majority of U.S. trade flows, it wasn’t surprising that their deficit pattern was identical. They remained consistently in the high $80 billions since January (also with the exception of March) and then grew in June by 4.53 percent, from $70.99 billion to $75.75 billion. And this total also replaced March’s total as the new record.

The pattern was the same for Made in Washington trade. Its monthly deficit totals, except for March, remained in the high $80 billion range since January, too, then broke out in June from $86.73 billion to $92.42 billion – a rise of 6.56 percent to another all-time high that surpassed a previous March record.

Services trade set no records in June, but its $17.43 billion surplus was the smallest since August, 2012’s $17.08 billion. Because the CCP Virus’ Delta variant hadn’t raised the prospect of more economic curbs back in June, this figure will be worth following closely, since services are so vulnerable to virus-prompted restrictions.

Combined U.S. goods and services exports did bump up by 0.58 percent on month in June, from May’s $206.47 billion to $207.67 billion. In addition, that represented the biggest monthly total since the $209.88 billion recorded in December, 2019 – just before the pandemic is thought to have arrived in the United States. But the much greater amount of total imports climbed by 2.15 percent, from $277.46 billion to a new record of $283.42 billion.

At $145.91 billion, goods exports set their fourth straight monthly record in June. But they continued to improve slowly – by just 0.19 percent over the May total. In fact, since March, they’ve only advanced by 1.57 percent in all on a monthly basis, no doubt in part to relatively sluggish growth in most of the world outside the United States.

The much larger amount of goods imports climbed much faster in June – by 1.84 percent on month, to reach their second straight all-time high of $239.09 billion.

As for services, exports in June advanced by a respectable 1.53 percent, to $61.76 billion. The monthly improvement was the fourth straight, and their best performance since February, 2020’s $69.12 billion. But clearly these levels remain depressed.

Services imports in June also set a post-February, 2020 high ($44.35 billion versus $47.06 billion) and increased for the fifth straight month. But they rose more than twice as fast (3.84 percent) as services exports, and their levels are also well below pre-CCP Virus levels.

America’s non-oil goods exports actually fell sequentially on month in June – by 1.62 percent, from a record $129.66 billion in May to $127.56 billion. The much greater amount of imports, however, grew by 1.66 percent, to $219.98 billion, a level that slightly topped the previous all-time high of $219.68 billion set in March.

The U.S. goods trade deficit with China did worsen in June – from May’s $26.32 billion to $27.84 billion. But the 5.79 percent increase trailed that of the non-oil goods gap, the closest global proxy (6.56 percent). The year-to-date totals tell the same story: The China goods shortfall is up more slowly ( 20.81 percent) than the global Made in Washington deficit (24.59 percent).

Back to the monthly figures, U.S. goods exports to China fell by 2.49 percent between May and June – from $12.41 billion to $12.10 billion. Imports, however, were 3.13 percent higher ($38.73 billion to $39.95 billion).

Especially interesting: On a monthly basis, U.S. goods imports from China have inched up only from $39.11 billion to $39.95 billion. For all non-oil goods by this measure, U.S. imports have risen much faster – from $205.08 billion to $219.98 billion. So it seems clear that the Trump tariffs keep pricing many Chinese goods out of the U.S. market.

But although America’s China and non-oil goods trade shortfalls have stayed fairly stable on a monthly basis since January, its manufacturing trade gap has widened substantially. Already lofty enough during the first month of the year at $99.79 billion, it stood 4.87 percent higher in June – $114.06 billion.

Further, this total broke the previous record of $110.20 billion, set last October.

Domestic manufacturing exports improved by 1.81 percent on month, from $95.33 billion to $97.06 billion. But the much greater amount of imports jumped by 4.49 percent, from $202.04 billion to $211.11 billion.

On a year-to-date basis, moreover, the manufacturing deficit has surged by just under 30 percent. At $622.12 billion as of June, it’s headed toward an all-time annual record.

Other manufacturing records or multi-year highs revealed by the June data included a record monthly deficit of $28.14 billion goods deficit with Europe (including its eastern and western regions, as well as Russia); the third consecutive record monthly goods deficit with new world semiconductor manufacturing technology leader Taiwan ($3.49 billion); and the highest goods deficit with Canada ($5.46 billion) since October, 2008 ($5.65 billion).

A single month’s worth of data doesn’t prove anything, so truly credible judgments about the possible return to pre-pandemic U.S. trade normality still can’t be made based on the data. Also crucial is examining trade figures and their changes against the backdrop of the entire economy’s size and its changes, in order to provide crucial context. When looking at growth and contraction rates in particular the challenge is difficult because trade flow changes only affect the rest of the economy after the passage of some time. 

And of course, if the virus’ Delta variant prompts major, nation-wide U.S. economic restrictions and behavior changes, all trade – and broader economic – forecasting bets are off for the time being.        

(What’s Left of) Our Economy: Latest Figures Leave the U.S. Trade Picture as Foggy as Ever

Tags

aerospace, aircraft, Boeing, Canada, CCP Virus, China, coronavirus, COVID 19, Donald Trump, exports, goods trade, imports, Made in Washington trade deficit, manufacturing, non-oil goods deficit, reopening, services trade, tariffs, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

With huge Chinese ports newly suffering the kind of congestion that’s clogged America’s West Coast ports for months, the U.S. and other national economies reopening at widely varying rates from their CCP Virus-induced shutdowns, and a worldwide shortage of semiconductors still undermining production throughout the world’s manufacturing industries, it’s tougher than ever to figure out what to make of the latest monthly U.S. trade figures (for May).

Oh, and I almost forgot: America’s long-time export and trade surplus standout, Boeing, keeps making bad news on the intertwined manufacturing and safety fronts, which means that its domestic and overseas sales could be depressed for months more.

So since they’re of such little help in figuring out the two biggest trade policy questions facing the country – about how different a post-pandemic trade normal may look from its pre-virus counterpart, and whether and how well the Trump tariffs are still working – it seems the best course to follow is simply reporting the highlights of the May report from the Census Bureau (and voicing some very tentative analyses where I have the courage).

These new data, which came out last Friday, revealed that the combined U.S. goods and services trade deficit increased by 3.14 percent between April and May – from $69.07 billion to $71.24 billion. The total was the second highest ever, trailing only March’s $75.03 billion.

The same general pattern characterized the goods trade gap, which widened by 2.76 percent (from $86.78 billion to $89.17 billion), also hit the second highest total on record, and also fell short of a March all-time high ($92.86 billion).

The best trade balance-related news came on the services side – which has been especialy hard hit by the virus and its effects, and where the surplus widened by 0.74 percent (from $17.80 billion to $17.93 billion) and improved for the first time since January.

Total exports advanced for the fourth straight month in May (by 0.64 percent, from $204.70 billion to $206.02 billion), and attained their highest level since December, 2019, just before the CCP Virus seems to have begun spreading from China.

Goods exports were something of a laggard – growing sequentially in May by just 0.30 percent (from $145.09 billion to $145.28 billion. More encouragingly, this level set its second straight monthly record.

Services exports fared better, up 1.47 percent on-month in May (from $59.62 billion to $60.49 billion) and producing their best monthly total since semi-pandemic-y March, 2020’s $60.62 billion.

But on all counts, U.S. imports rose faster.

The total import amount reached $277.26 billion in May, rising 1.27 percent from April’s $273.78 billion and representing the second highest total ever. Only the $277.69 billion figure from…yes…March has been higher.

Goods imports rose by a slower 1.18 percent, from $231.96 billion to $234.70 billion. And the total was another second highest, lagging only March’s $236.52 billion.

Despite their surplus growing, services imports rose considerably faster, by 1.77 percent, from $41.84 billion to $42.56 billion. That total was the highest since February, 2020 ($47.06 billion) – just before the virus’ arrival.

To a noteworthy degree, the worsening of the overall and goods deficits in May looks like a Boeing story. The narrowing of the U.S. civilian aircraft trade surplus (by $1.388 billion) accounted for nearly 64 percent of the increase deterioration in the overall trade balance, and 58.05 percent of the monthly growth of the goods trade gap.

Boeing’s troubles can’t be blamed for the entire year’s lofty deficit numbers. Far from it. In fact, between the January-to-May periods last year and this year, the $917 million shrinkage of the aircraft surplus has equalled less than one percent of the overall deficit’s increase during this time and just slightly more of the goods deficit. Aircraft trade numbers can be pretty volatile, too. But is the Boeing effect on the May data a portent of things to come? Stay tuned.

As known by RealityChek regulars, the best measure of how tariffs and similar trade policies are influencing U.S. trade flows is non-oil goods trade, which strips out oil (which hardly ever comes up in trade policymaking) and services (where global trade liberalization remains modest). And in this context, what jumps out right away from the May trade results (or what should jump out) is that this portion of the trade deficit rose much more slowly on month (0.33 percent) than the combined goods and services deficit (3.14 percent) or the total goods deficit (2.76 percent). And interestingly, without the poor civilian aircraft numbers, the “Made in Washington” trade deficit would have fallen month-to-month.

Moreover, on a January-to-May year-to-date basis, the non-oil goods trade deficit worsened just about half as much (by 23.99 percent) as the overall deficit (45.82 percent), and somewhat more slowly than the goods deficit (26.44 percent). Given that the Trump China tariffs alone of some $350 billion amounted to some 15.21 percent of total U.S. non-oil goods imports in 2019 (and remain in place today), that could be a sign that the levies have succeeded in restraining that deficit’s growth. When it comes to the Boeing effect, however, it’s negligible here, too.

May was an especially bad month for U.S. manufacturing trade, as its chronically huge shortfall jumped by 3.01 percent, from $103.60 billion to 106.72 billion. Huge as that sounds, it was only the fifth worst such figure ever. Exports increased by 0.91 percent while the much greater amount of imports climbed by 2.01 percent. Again, the Boeing effect generated much (nearly 45 percent) of the monthly deficit worsening but less than one percent of the $116.57 billion year-to-date difference.

May was also a bad month for China tariff supporters. The U.S. goods deficit with the PRC grew by 1.90 percent on month – much faster than the 0.33 percent increase in the non-oil goods deficit that’s its closest worldwide proxy. U.S. goods exports to the PRC advanced by a healthy 5.54 percent. May monthly imports grew much more slowly (3.04 percent), but they’re more than three times greater.

On a year-to-date basis, moreover, the Sino-American trade gap is 26.92 percent wider than last year, which stands not only as faster growth than that of the non-oil goods deficit (23.99 percent), but another sign that of tariff failure, as the China deficit by this measure has been rising faster non-oil goods deficit since March. Still, it’s difficult drawing firm conclusions, since the recovery of China’s export-heavy economy from its pandemic experience has been faster than that of most other (often also export-reliant) U.S. trade partners. Moreover, the difference between the growth rates of the two deficits has narrowed dramatically since March, so it’s possible that the pre-pandemic pattern – which reflected much better on the tariffs – is steadily returning.

And let’s end on an unexpected note: In May, the U.S. goods deficit with Canada surged by 56.98 percent sequentially, to $3.69 billion. That’s the highest level since December, 2019’s $4.95 billion and the fastest monthly increase since January’s 74.04 percent. This monthly rise, moreover, was driven by U.S. imports, which reached $29.08 billion – the biggest monthly total since October, 2014 ($30.72 billion). The monthly increase: a strong but hardly record breaking 5.86 percent. American goods exports to its northern neighbor, however, rose by just 1.09 percent, to $25.39 billion. And year-to-date, the U.S. goods deficit with Canada has more than doubled, soaring by a 108.93 percent.