(What’s Left of) Our Economy: Some Fishy New Official U.S. Trade Figures

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Commerce Department, exports, GDP, goods trade, gross domestic product, imports, real GDP, services trade, Trade, trade deficit, {What's Left of) Our Economy

Life as a blogger just gets more unpredictable all the time. Here I was this morning all set to try to figure out whether I’d write about the presidential debate last night or about the official new overall U.S. economic growth (actually contraction) numbers or about the official new figures for how domestic manufacturing fared. And I find my interest most piqued by apparent mistakes in those overall data on the shrinkage of the gross domestic product (GDP) in the second quarter.

As RealityChek regulars know, when I cover the GDP figures (which tell us how much in the way of goods and services the U.S. economy has turned out in a given time period, and how it’s changed over time), I tend to focus on the trade numbers that help make up these total figures. And I like to look at revisions, because the U.S. Commerce Department, which tracks these trends, doesn’t get it right the first time, or even the second time (because new information is being constantly received), and because it’s right up front about making these imperfections clear. (That’s why several revisions of these data are issued in the first place.)

Today’s report on the economy’s performance in the second quarter of this year was the third such report, and the final verdict for the time being. (So-called “benchmark” revisions will be coming down the road, going back several years, which speaks volumes about Commerce’s determination to get it right.)

And the “headline” trade number showed that between the first quarter and the second quarter, the total U.S. trade deficit declined from $788.0 billion to $775.1 billion. (All these trade figures are adjusted for inflation and presented at annual rates.) That’s an improvement. But it’s not as much of an improvement as the previous GDP report showed. According to that release, which came out about a month ago, the total second quarter real annualized trade deficit was $760.9 billion.

Or was it?

I can’t recount exactly what spurred me to look into the underlying figures, as opposed to taking the data’s accuracy for granted, as I normally do. But I began to check them out. And here’s what I found for that previous set of second quarter figures.

Last month’s GDP report judged that after-inflation U.S. goods exports for the second quarter totaled $1.3519 trillion annualized and U.S. goods imports were $2.3487 trillion. To get the balance, subtract second number from the first and you get a deficit of $996.8 billion.

For services, the second quarter results were previously reported as price-adjusted exports of $591.5 billion and imports of $372.8 billion. Doing the arithmetic produces a real services trade surplus of $218.7 billion.

To get the total trade deficit, the $218.7 billion services surplus has to be subtracted from the $996.8 billion goods deficit. And that number comes out to -$778.1 billion – not -$760.9 billion.

This difference is by no means major. But if my math is accurate, it reveals a final (for now) inflation-adjusted second quarter trade deficit that improved sligthly over the previously reported figure, rather than worsened.

In other words, the previous GDP report estimated that the second quarter real trade deficit improved on the first quarter’s results by a margin of $788 billion to $760.9 billion. But it looks like it should have reported a much less impressive narrowing – to just $778.1 billion. As a result, the $775.1 billion second quarter trade deficit figure reported this morning is a slightly better number than the incorrect previous estimate – not a worse result, as that incorrectly reported previous number indicated.

But guess what? That latest second quarter figure doesn’t add up, either. Specifically, today’s report pegs combined U.S. goods and services exports at $1.9274 trillion in real terms on an annual basis, with goods exports judged to be $1.3472 trillion and services exports reported as $582.1 billion. Add them up and you get $1.9293 trillion, not $1.9274 trillion.

On the import side, the Commerce Department now says that the second quarter total is $2.7025 trillion annualized, and that it’s comprised of $2.3480 trillion worth of goods imports and $372.1 billion worth of services imports. That adds up to $2.7201 trillion, not $2.7025 trillion. As a result, the total trade deficit was actually $790.8 billion annualized, not $775.1 billion (the difference between the new $2.7201 trillion total import figure and the $1.9293 trillion total export number).

Therefore, not only did the real trade deficit total worsen over the figure reported last month (from $778.1 billion to $790.8 billion, not to the $775.1 billion reported today). It also worsened from the first quarter’s $788.0 billion number.

At which point, it pains me to report that that first quarter total doesn’t add up, either.

The bottom line for me is that I’ll keep reporting the headline trade figures as they’re presented in the GDP reports by the Commerce Department. But I’ll be even more cautious than usual about assuming that they’re even accurate in measuring changes of direction, much less precise amounts. And I’ll be wondering if the rest of the federal government’s economic data is any better – at least until I can figure out what’s going on here.

(What’s Left of) Our Economy: Trump is Winning the Trade and Decoupling Wars

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CCP Virus, China, coronavirus, COVID 19, decoupling, FDI, foreign direct investment, goods trade, merchandise trade, MSCI, non-oil goods trade deficit, pension funds, Rhodium Group, Securities and Exchange Commission, tariffs, Trade, Trade Deficits, trade war, Trump, Wuhan virus, {What's Left of) Our Economy

It’s become increasingly clear in the last few days that President Trump’s trade war with China and his apparent efforts to decouple the U.S. and Chinese economies have achieved real successes. Just why exactly? Because of a recent flurry of claims in the Mainstream Media that the trade war has been an ignominious defeat for the President and his tariffs, and that decoupling can only backfire on America if it’s taken too far (an outcome that’s supposedly imminent). (See here, here, and here in particular.)

As RealityChek regulars know, such media doom- and fear-mongering – spread both by journalists and by the purported experts they keep quoting who have been disastrously wrong literally for decades about trade and broader economic expansion with China – are now well established contrarian indicators. And here’s some of the key data that these proven failures have overlooked.

Let’s start with the least controversial measure of decoupling – two-way trade. Let’s generally use the end of the previous administration as our baseline, since decoupling really is a Trump-specific priority. And let’s generally end with the end of 2019, not only because it’s our last full data year, but because the coronavirus pandemic clearly is distorting the data, and won’t be with us forever (although some of its effects on supply chains and the like might – also because of reinforcement from the trade war). We’ll also stick with goods trade, since detailed service trade figures are always late to come out, and because they’re rarely major subjects of trade policy.

Between 2016 and 2019, combined US goods imports from and goods exports to China actually grew by 2.92 percent. So where’s the decoupling, you might ask? It becomes clear from using economic analysis best practices and putting these figures into context – mainly, the performance of the entire economy.

And in this case and many of those below, it’s crucial to know that the economy grew during this period, too. As a result, in 2016, this two-way goods trade (also called merchandise trade) amounted to 3.08 percent gross domestic product (GDP) – the nation’s total output of goods and services. In 2019, it was down to 2.60 percent. That is, like a supertanker, this trade doen’t turn around right away.

Therefore, it is indeed legitimate to fault Mr. Trump for claiming that trade wars are easy to win. But the supertanker is turning. And the impact on the economy? In 2016, it expanded by 2.78 percent. In 2019? 3.98 percent. So not much damage evident there. (All these figures are pre-inflation figures, because detailed inflation-adjusted trade figures aren’t available.)

Similar trends hold for the U.S.-China goods trade deficit, which the President views as the most important scorecard for his China trade policy success. Between 2016 and 2019 in absolute terms, it barely budged – dipping by just 0.47 percent. That could be a rounding error.

But viewed in the proper context, this trade deficit fell from 1.85 percent of GDP to 1.61 percent. And again, the economy grew much faster in 2019 than in 2016.

It’s still possible to ask what any of the trade decoupling had to do with the President’s ballyhooed tariffs. But the only reasonble answer? “A lot.” That’s because even after the signing of the so-called Phase One U.S.-China trade deal in January, levies of 7.5 percent remain on categories of imports from China that have been totalling about $120 billion annually lately, and tariffs of 25 percent remain on $250 billion more. (That’s most of the $451.65 billion in total goods imported by the United States from China in 2019.)

For comparison’s sake, between 2016 and 2019, the U.S. worldwide non-oil goods trade deficit – that’s the deficit that’s most impacted by trade policy decisions like tariffs, and the portion of the deficit that’s most like US-China trade – rose by 24 percent. That’s more than 50 times faster than the increase in the China goods deficit.

So there can’t be any serious doubt that the Trump China tariffs have worked both directly (by keeping Chinese goods out of the U.S. market) and indirectly (by encouraging companies that had been producing in China for export to the United States to move elsewhere). Moreover, since that “elsewhere” is always to much friendlier countries, that’s a plus for Americans even though the decoupling by most accounts has only returned modest amounts of jobs stateside.

Moreover, there’s a strong case to be made that the Trump tariffs on China have prevented the U.S. economy’s CCP Virus-induced recession from being much worse. That contention is borne out by the fact that, as RealityChek reported earlier this month, the latest available apples-to-apples statistics show that China’s goods trade surplus with the world as a whole had increased by some 25 percent between July, 2019 and July, 2020. But during that period, the China goods surplus with the United State fell by about 18 percent.

As a result, according to the standard way of measuring the economy and how developments in areas like trade affect its growth or shrinkage, China over roughly the last year has been growing at the expense of the world as a whole, but not at America’s. Indeed, quite the opposite. After decades of trade with China slowing U.S. growth, such commerce is now supporting growth.

The decoupling picture, however, wouldn’t be complete without investment flows. Here, on one front, the disengagement has been even more extensive. The consulting firm Rhodium Group does a good job of crunching the numbers on foreign direct investment (FDI) – those transactions that involve so-called hard assets, like real estate and factories and warehouses and entire companies, as opposed to portfolio investment, which involves stocks, bonds, and other financial instruments.

By a happy coincidence, Rhodium has just issued its latest report, which takes us through the first half of 2020. Yes, that covers the virus era, when it’s natural to expect all kind of economic and commercial activity to decline. But the pre-virus era trends will become clear enough, too.

According to Rhodium, two-way FDI flows between the United States and China in the first six months of this year (measured by the value of completed deals) hit their lowest level since the second half of 2011. And the peak came during comparable periods between early 2016 and late 2017 – when these investments were running nearly four times their current levels. Moreover that peak, not so coincidentally, bridged the Obama-Trump transition.

Chinese FDI into the US during that first half of this year actually rose a great deal – from $1.3 to $4.7 billion. But this increase resulted entirely – and then some – from a single purchase by the big Chinese social media company WeChat of a 10 percent stake in the U.S. company Universal Music. Without that transaction, Chinese flows into the US would have dropped, and even the current somewhat artificially high level is only about a fifth as high as its peak – hit in late 2016. So you can see a decided Trump effect here, too.

U.S. FDI flows into China have held up better, if that’s the term you want to use. But they were off 31 percent between the second half of 2019 and the first halfof this year – to $4.1b. And their peak level – hit in 2014 – was $8.5b. So that’s another big Trump-related drop.

One disturbing counter-trend that the Trump administration has been too slow to address: There’s abundant evidence that U.S. financial investment into China – buys of assets like stocks and bonds – keeps surging.

One indication: According to the Financial Times earlier this month, since the Wall Street firm MSCI in June, 2017, first announced plans to include Chinese domestically listed “A-share” companies into one of its widely followed indices, “roughly $875bn in foreign investment has flowed into Chinese equities through stock connect programmes linking Hong Kong with onshore bourses in Shanghai and Shenzhen.”

And although the U.S. share is difficult to quantify, between private investors and state-level government workers’ pension funds, this analysis from the U.S. Securities and Exchange Commission makes clear that it’s considerable.  (Due to Trump administration pressure, the body overseeing federal pension plans’ investments has delayed a decision to channel funds into the aforementioned MSCI index.)   

So can anyone reasonably claim “Mission accomplished” for the Trump trade and decoupling policies? Not yet. But is a “job well done so far” conclusion merited? Certainly for anyone who’s not Trump-ly Deranged.

(What’s Left of) Our Economy: China’s Trade is Killing Global – but not U.S. – Growth

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CCP Virus, China, coronavirus, COVID 19, goods imports, goods trade, goods trade deficit, goods trade surplus, merchandise trade, tariffs, Trade, trade war, Trump, Wuhan virus, {What's Left of) Our Economy

Let’s say you don’t care about America’s still-huge and longstanding trade deficit with China. You should still be up in arms about the trade figures that just came out from the People’s Republic. For they make clear that China this year has been growing at the expense of the rest of the world just as the pandemic it spawned has destroyed massive amounts of income, jobs, and growth around the world.

At the same time, these data should cheer anyone who’s more America First-inclined, since they also provide compelling evidence that President Trump’s tariff-heavy trade policy toward China has delivered considerable benefits to the United States during this crisis.    

It’s a maxim of conventional economics that changes in a country’s trade balance determine its role in adding to or subtracting from global growth. More specifically, national economies whose trade balances are worsening (either because surpluses are shrinking, surpluses have become deficits, or deficits have increased) are adding to output worldwide. That’s because such countries are consuming more of other economies’ output, and therefore expanding the demand for these goods and services, more than their own goods and services are taking share of other countries’ markets.

Improving trade balances (either because deficits are shrinking, deficits have become surpluses, or surpluses are increasing) subtract from global growth because the opposite effects are created.

The China trade data I’m talking about only cover its goods (or merchandise) trade. But since China’s two-way global goods trade (totaling $2.1431 trillion for the first half of this year) is nearly seven times greater than its two-way global services trade ($316.27 billion), it’s clearly worth focusing on.

And here’s what the numbers show: From January through August of this year, China’s goods trade surplus with the entire world added up to $327.92 billion. For the same eight-month period of last year, the number was $262.29 billion. That’s an increase of just over 25 percent, and a growth drag this year’s global econmy can ill afford. (Here’s the source.)

In this vein, it’s more than a little interesting that between January and July, 2019 and January and July, 2020, China’s goods trade surplus with the United States fell by 18.14 percent. (The U.S. figures for August won’t be released until early October.) In other words, merchandise trade with China has added to America’s growth.

Of special importance, year-to-date, U.S. goods imports from China are off by 14.71 percent. Globally, according to this source, imports from China worldwide are down only 4.11 percent. (These last numbers vary, but only in a minor range.) Which seems to be a ringing endorsement of President Trump’s stiff and sweeping tariffs on imports from the People’s Republic. Why else would the pattern of China’s trade with the United States this year differ so dramatically from the pattern of China’s global trade?

Meanwhile, on a net basis, it’s not like other countries are making out like bandits in the wake of China’s weak performance. The total American non-oil goods deficit (which RealityChek likes to call the Made in Washington deficit, because it’s the portion of U.S. trade flows most heavily influenced by trade policy, and which comprise the best proxy for U.S.-China trade flows) is up year-to-date, but only by about a half a percent. And U.S. non-oil goods imports are off by 9.79 percent globally – considerably less than the decrease in imports from China.

It’s true that the pace of U.S. imports from China has picked up lately. Indeed, on a monthly basis, they’ve doubled between March and July – nearly twice the 28.34 percent advance in global imports from China during this period. But given the relatively rapid U.S. economic recovery, it’s legitimate to ask where these trade figures would be with no tariffs. Moreover, it’s way too soon to know into which what kind of post-virus-normal and post-Phase-One-trade deal normal U.S.-China, and China’s global trade flows will settle.

So far, however, the numbers tell a reasonably clear story. During the pandemic, China’s trade has strongly subtracted from global growth with countries that have not launched a trade war, and actually added to growth with the country that has.

(What’s Left of) Our Economy: More Trade Surprises in the New U.S. GDP Report

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CCP Virus, Commerce Department, coronavirus, COVID 19, exports, GDP, goods trade, Great Recession, gross domestic product, imports, real GDP, recession, services trade, shutdowns, trade deficit, Wuhan virus, {What's Left of) Our Economy

First, let’s get the obvious out of the way: The U.S. economy took such a huge hit during the second quarter of this year that the 36.87 percent nosedive in output sequentially at an annualized rate reported this morning by the Commerce Departent was actually slightly good news. Specifically, it represented an improvement over the plunge estimated in last month’s advance read on the gross domestic product (GDP) – nearly 38 percent. Talk about a low bar!

(Just FYI, the above figures differ from what the Commerce Department itself has calculated and the media have reported. Mine are based on taking the second quarter annualized figure (in this case) of $17.2822 trillion in inflation-adjusted terms (the most closely watched of the GDP statistics) subtracting it from the first quarter figure ($19.0108 trillion), and then multiplying by four.)

Now for the less obvious: The GDP figures, which of course are historically awful because of the CCP Virus-induced shutdowns (and therefore maybe not very good measures of the economy’s underlying condition) keep producing noteworthy surprises on the trade front.

Specifically, last month’s initial Commerce Department GDP release pegged the inflation-adjusted trade deficit at $780.7 billion at an annual rate. This morning’s number was down to $760.9 billion. That’s a big revision, and it means that since the first quarter, the gap has narrowed not by the 3.71 percent estimated last month, but 13.76 percent – more than 3.7 times more! This shortfall, moreover, was the lowest since the second quarter of 2016’s $745.2 billion.

Interestingly, the main source of the improvement was on the goods side. Service sectors – which have suffered the most during the pandemic period because so many depend on human contact of some kind or other – saw their trade results barely budge from the previous estimates for the second quarter.

At the same time, let’s not overlook one stunning services trade-related result. As was the case with that previous second quarter services import figure of $372.7 billion annualized, this morning’s $372.8 billion result was the lowest in more than fourteen years, when the fourth quarter 2005 services import figure came in at $368.4 billion.

As for the rest of the components of inflation-adjusted U.S. trade flows (all annualized):

Second quarter U.S. total exports were revised up 0.60 percent, from $1.9316 trillion to $1.9431 trillion. That quarterly total was still the lowest since the first quarter of 2010 ($1.9026 trillion) – early in the recovery from the Great Recession of 2007-09.

Second 2Q total imports were revised down 0.30 percent, from $2.7123 trillion to $2.7040 trillion – the lowest since the third quarter of 2011 ($2.6970 trillion).

Second quarter goods exports were revised up 0.99 percent, from $1.3386 trillion to $1.3519 trillion. But that’s also the lowest such number since the first quarter of 2010 – which was exactly the same!

Second quarter goods imports of $2.3575 trillion represented a 0.37 percent upward revision from the previously reported $2.3487 trillion. That’s the smallest such figure since the second quarter of 2013 ($2.3381 trillion).

Second quarter services exports are now judged to have been $591.5 billion – just 0.12 percent lower than the first estimate of $592.2 billion – and the worst such total since the first quarter of 2010’s $586.8 billion.

And finally, that new second quarter services imports figure of $372.8 billion is virtually unchanged from the previous estimate of $327.7 billion. But again – it’s a nearly 15-year low.

For the time being, there’s one more second quarter GDP estimate to come from the Commerce Department – about a month from now. Then we’ll be getting into the reports for the third quarter, which is widely thought to have witnessed a strong but far from complete rebound in the economy. I for one can’t wait to see if those numbers produce any comparable trade surprises – and if so, what kind.

(What’s Left of) Our Economy: Biggest Mid-Year U.S. Trade Winners & Losers I

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CCP Virus, coronavirus, COVID 19, goods trade, manufacturing, merchandise trade, recession, Trade, Trade Deficits, trade surpluses, Wuhan virus, {What's Left of) Our Economy

It’s June! Or it’s June at least according to the folks at the U.S. Census Bureau who track America’s international trade flows. And the arrival of this mid-year point means it’s a good time to see effectively various segments of the country’s economy are competing in the global economy, including here at home.

As with most of American life, this regular RealityChek exercise has been deeply affected by the arrival of the CCP Virus, and in particular, by the historic recession (and maybe depression) it’s triggered due to widespread lockdowns. But even though the figures below – which cover the nation’s goods industries but leave out services (because the government database I rely doesn’t report on the latter, and because comparably detailed data won’t be released for a while) are seriously distorted by the pandemic, they’re useful for three reasons.

First, they suggest which parts of the economy are holding up better and worse during a public health crisis the likes of which are, scarily, likely to recur more than once down the road. Second, the goods industries examined here (manufacturing, agriculture, minerals, and energy) have been affected less dramatically than most service industries, which depend heavily on various degrees of personal contact with customers. Therefore, the virus distortion isn’t nearly so great as might be initially supposed. Third, since all these goods sectors s have been affected by the CCP Virus, their trade performance could well reveal important information about their underlying strengths and weaknesses.

We’ll focus today on actual trade balances – deficits and surpluses – and how they’ve changed between the first half of last year and the first half of this year. As usual, the figures come from the U.S. International Trade Commission’s terrific Trade Dataweb interactive search engine. The goods categories used are those of the North American Industry Classification System (NAICS) – the federal government’s main way to slice and dice the U.S. economy. And the level of disaggregation I’m using is the sixth, since it’s the level at which you can keep the numbers of sectors analyzed manageable, and at the same time make distinctions between final products on the one hand, and their parts and components on the other (vitally important given much more specialized manufacturing has become).

One anomaly you may notice right away: Although these are both Top 20 lists, they each have more than 20 entries. The reason? Truly bizarre changes in the way the government reports results from the aerospace sector. Once upon a time, Washington used separate NAICS 6 categories for aircraft, non-engine aircraft parts, and aircraft engines and parts. Now they’re all being combined – except where they’re not! The best way I could think of to offset these inconsistencies was to include all the aircraft-related figures when they showed up in the Top 20, but add the twenty-first or twenty-second industry on that list to get the closest approximation of a real Top 20.

Let’s start with those parts of the economy that posted the biggest trade surpluses in the first half of 2020, the actual totals in billions of current (i.e., pre-inflation) dollars, and how this list compares with its counterpart from last year. A dash here means that that sector didn’t appear on the top 20 2019 list at all.

Top 20 2020 trade surpluses                                                          2019 rank

1. civilian aircraft, engines, equipment, parts:        $39.475b              –

2. petroleum refinery products:                               $16.138b              1

3. natural gas:                                                          $12.647b              –

4. other special classification provisions:               $10.927b               2

5. plastics materials and resins:                                $8.720b               3

6. waste and scrap:                                                   $6.403b               5

7. soybeans:                                                             $5.882b                4

8. semiconductors:                                                  $5.748b              12

9. corn:                                                                    $4.678b                9

10. used or second hand merchandise:                   $4.635b                7

11. non-poultry meat products:                              $3.388b              10

12. non-anthracite coal & petroleum gases:          $2.982b                 6

13. motor vehicle bodies:                                      $2.915b                 8

14. wheat:                                                             $2.847b                13

15. semiconductor production equipment:           $2.651b                 –

16. tree nuts:                                                         $1.890b               14

17. prepared or preserved poultry:                       $1.825b               17

18. invitro diagnostic substances:                        $1.653b               18

19. paperboard mill products:                              $1.621b               20

20. surface active agents:                                     $1.614b                –

21. computer parts:                                              $1.586b               15

What jumped out at me right away is that, with three exceptions, the top 20 (actually, top 21) for this year and the list last year were identical. Only three sectors – natural gas, semiconductor production equipment, and surface active agents were newcomers to the 2020 list. And shuffling around between these groups was pretty mimimal. Eight of the sectors either maintained their exact same rank between 2019 and 2020, or only moved one spot. Three more moved only two spots. Given the stunning disruption of life in the United States all around the world, those results seem remarkably stable – and indicate that this group of big American trade winners boasts impressive resilience.

From another vantage point, ten of the 21 sectors on the list were manufacturing industries. In 2019, manufacturing placed only eight representatives in the top 21. So for manufacturing fans (as everyone who’s hoping for enduring American prosperity should be), 2020 has been a year of progress so far.

Below are the goods sectors of the economy with the 21 biggest trade deficits.

Top 20 2020 trade deficits                                                           2019 rank

1. autos and light trucks:                                        $42.120b             1

2. goods returned from Canada:                            $39.008b             2 

3. pharmaceutical preparations:                            $34.867b              4

4. computers:                                                         $29.647b             5

5. broadcast & wireless communications equip:  $26.848b              3

6. smelted/ refined non-ferrous non-alum metal: $19.228b              –

7. miscelleaneous extruded non-ferrous metals:  $15.885b              –

8. women’s cut and sew apparel:                          $14.691b             6

9.crude oil:                                                           $13.658b              –

10. non-diagnostic biological products:              $12.486b            14

11. men’s cut and sew apparel:                              $9.706b              7 

12. printed circuit assemblies:                               $9.571b            15 

13. footwear:                                                         $9.276b              9

14. miscellaneous motor vehicle parts:                 $9.176b            10 

15. miscellaneous textile products:                       $8.892b             –

16. aircraft engines and parts:                               $8.709b             8

17. audio and video equipment:                            $8.107b            11

18. major household appliances:                           $6.801b             –

19. medicinal & botanical drugs & vitamins:       $6.651b             –

20. iron and steel products:                                   $6.460b             –

21.miscellaneous plastics products:                      $6.454b           20

One big difference between this list and the trade surplus list: Fully seven industries this year are newcomers. Even so, however, of the 13 sectors that made it onto both lists, shuffling was actually more limited as on the trade surplus list. Nine of them either held the same ranking or only moved one rung up or down the latter.

This trade deficit list, however, is much more manufacturing-heavy than the surplus list. In fact, it’s nearly twice as manufacturing-heavy, with such sectors accounting for 19 of the 21 on each A final, discouraging, difference: The trade deficits of the leading deficit industries are much bigger than the surpluses of the leading surplus industries. That’s a good reminder that even though the overall goods trade deficit (also called the merchandise trade deficit) is down 5.15 percent on a year-to-date basis so far, it was still more than $391 billion.  Similarly, although the manufacturing deficit is down 4.53 percent on a year-to-date basis, it’s still come in at $476.90 billion so far in 2020.  

But we’re far from finished analyzing the year-to-date trade flows. When it comes to trade balances, we still need to look at more dynamic figures – that is, at which sectors have seen the greatest improvements in their trade balances, and which have seen the greatest deterioration. And of course we can’t forget the export and import figures that comprise the trade balance data, and how they’ve changed between January and June of last year and January and June of this year. Keep checking in with RealityChek for those results!

(What’s Left of) Our Economy: A Big China Mystery Inside the Latest U.S. Trade Figures

Tags

China, exports, goods trade, imports, merchandise trade, non-oil goods trade deficit, Trade, trade deficit, U.S. International Trade Commission, {What's Left of) Our Economy

The big mystery about yesterday’s monthly U.S. trade report (for May) concerns China. Specifically, why are imports from the People’s Republic streaming into the American economy again, considering the stiff, sweeping tariffs on hundreds of billions of dollars worth of Chinese-made goods destined for U.S. markets, and of course the continuing troubles faced by the U.S. economy from the CCP Virus?

I won’t be able to provide a detailed answer till sometime next week – when I expect the U.S. International Trade Commission to post the data on its website. But I can say right now that these imports were great enough account for more than all of the blame for $4.85 billion (9.74 percent) sequential widening of the overall U.S. trade gap in May.

That combined goods and services trade shortfall hit $54.60 billion – its highest level since October, 2008’s $60.88 billion. And back then, more than half that overall trade deficit was oil. In May, the United States ran an oil trade surplus – as it’s done since last fall.

Moreover, the overall May U.S. goods trade deficit (also known as the merchandise deficit) of $76.06 billion was the biggest such total since December, 2018’s $80.21 billion –and represented a $4.24 billion (5.90 percent) increase from April’s levels.

The specific China goods numbers? The bilateral trade gap widened by $4.49 billion (19.99 percent) sequentially in May – a figure 92.58 percent as big as the entire monthly U.S. trade deficit increase and, as mentioned above, greater than the monthly increase in the merchandise shortfall. In other words, as the goods trade deficit from everywhere else in toto fell during May, it rose from China. (Of course, because the U.S. trades with so many different countries, this doesn’t mean that goods trade shortfalls fell with every one of them other than China. But overall, the non-China goods trade gap narrowed.)

And the role of merchandise imports was as crucial as it is puzzling. U.S. goods imports from China rose on month in May by $5.53 billion (or 17.79 percent). So they alone exceeded the $4.85 billion sequential increase in the overall trade deficit and the $4.24 billion rise in the goods deficit.

Even weirder – goods imports from China were up in May while overall imports and global goods imports were down (by 0.88 percent and by 0.76 percent, respectively).

Despite the widening of the merchandise trade gap with China, U.S. goods exports to the People’s Republic improved on month in May – by $1.04 billion, to $9.64 billion. That’s not terribly surprising, since all indications are that China’s economy began recovering sooner than America’s from its own CCP Virus-induced shutdown. In fact, that monthly merchandise export total is the highest since last November’s $10.10 billion – meaning that those U.S. sales are back in their range for the whole of last year, before the virus broke out in China.

But was the U.S. economy rebounding strongly enough in May to explain easily a resumption of buying from China that also brought goods imports back to their highest level since November, and well inside their range, too, for all of last year? That’s hard to accept, if only because overall U.S. goods imports remain significantly depressed from last year’s levels, and because of those Trump tariffs. Such bewilderment seems justified even given that in recent years, May has been a month during which merchandise imports from China have risen strongly. After all, this wasn’t a normal May.

It’s true that on a year-to-date basis through May, U.S. goods imports from China in 2020 are down 15.90 percent – more than the 12.60 percent drop for goods imports total (but not that much more). The difference is somewhat greater with the 10.35 percent decrease in January-May total U.S. non-oil goods imports – which are a better global comparison with China goods imports, since China doesn’t sell oil to the United States.

It’s also true that the United States’ merchandise deficit with China through May of this year has shrunk much faster (24.58 percent) than its overall global goods deficit (7.78 percent) and much, much faster than its global non-oil goods deficit (2.34 percent). But it’s true as well that a non-trivial amount of this progress has reversed itself this month (as well as in April).

And that’s why I’ll get you the detailed answer to the “what are these China imports” question ASAP.

(What’s Left of) Our Economy: Great New Developments on the U.S.-China Decoupling Front

Tags

CCP Virus, Census Bureau, China, coronavirus, COVID 19, decoupling, FDI, foreign direct investment, GDP, goods trade, gross domestic product, National Committee on U.S.-China Relations, Rhodium Group, supply chain, tariffs, Trade, Trump, venture capital, Wuhan virus, {What's Left of) Our Economy

Amid the flood of terrible news that’s been engulfing the U.S. economy because of the CCP Virus and its shutdown effects, there’s a decidedly positive development to report: Major evidence has just come in showing that the decoupling of the U.S. economy from China’s keeps proceeding. And, even better, the data make clear that the United States is amply capable of prospering without extensive ties with (and resulting vulnerabilities to) the increasingly hostile and dangerous regime in Beijing.

The latest evidence for such conclusions about the so-called decoupling process comes from a study just jointly released by a research firm called the Rhodium Group and a pillar of the Offshoring Lobby called the National Committee on U.S.-China Relations. The real work was done by the folks at Rhodium, and the big takeaways are:

>that the value of Chinese “foreign direct investment” (FDI) in the United States (i.e., Chinese takeovers or acquisition of stakes in existing non-financial assets in the United States, and creation of new non-financial assets) fell slightly on year last year to its lowest annual level ($4.78 billion) since 2010, and is now nearly 90 percent below its peak annual level of $46.49 billion in 2016;

>that the value of Chinese “venture capital” investment (a strange term for originating in the state-controlled Chinese economy) going into the United States fell from its all-time high of $4.67 billion in 2018 to $2.57 billion last year;

>that the value of U.S. FDI made into the Chinese economy edged up sequentially last year, from $12.89 billion to $14.13 billion, but still remains well below its peak of $20.94 billion in 2008;

>and that the value of U.S. venture capital investment going into China plummeted from its all-time high of $19.57 billion in 2018 to $4.98 billion in last year.

Even if you’re not concerned about greater integration with a country that’s threatened cut off vital medical supplies to the United States during the current pandemic, or about the national security threat posed by Chinese access to defense- or surveillance- or hacking-related tech, this is great news for anyone valuing the benefits of free markets. For any participation by China’s state-controlled system in the U.S. economy can only distort the workings of free markets, and in particular, force U.S. businesses (which until the CCP Virus invaded needed to rely on private sources for their capital) to compete with Chinese rivals (which can rely on the Chinese treasury).

Rhodium’s research also found that Chinese investment flows into the United States plunged even further during the first quarter of this year (the first pandemic quarter) while U.S. flows into China remained pretty stable. But the pre-CCP Virus results are undoubtedly more revealing of the underlying longer-term trends.

Decoupling is proceeding even faster on the trade front. Last week’s monthly U.S. trade report from the Census Bureau (for March) showed that the two-way value of U.S.-China trade in goods (the sum of imports and exports) sank by 42.49 percent between the first quarter of 2019 and the first quarter of 2020. That’s the lowest quarterly level since the $72.16 billion level recorded for the first quarter of 2006.

More revealing, though: At that point, two-way goods trade represented 0.53 percent of the total U.S. economy. In the first quarter of 2020, the proportion was down to 0.35 percent.

Of course, the first quarter 2020 results have been distorted by the CCP Virus’ effects (and greater distortion surely lies ahead). More specifically, gross domestic product (GDP) decreased from the fourth quarter of last year to the first quarter of this year, and it grew a measly 2.10 percent before adjusting for inflation over the fourth quarter of 2019. (This and the following growth figures are different, and higher, than the growth figures featured in the most widely tracked GDP figures, which are adjusted for price changes. I’m using the pre-inflation GDP figures here because inflation-adjusted country-specific trade figures aren’t available.)

For more “normal” data, let’s check out the figures for the year preceding the fourth quarter of 2019. During that timespan, the value of two-way U.S.-China goods trade dropped by 19.48 percent – from $171.57 billion to $138.15 billion. But pre-inflation growth hit a solid 3.98 percent.

Slightly shifting the time periods examined produces the same pattern. Between the first quarter of 2018 and the first quarter of 2019, the value of two-way U.S.-China goods trade nosedived by 46.40 percent. In other words, it was cut nearly in half. Yet current dollar growth during that period hit 4.64 percent.

At this point, it’s necessary to point out that this big 2018-19 decline in the value of two-way goods trade came right on the heels of a huge 77.58 percent increase between 2017 and 2018. But this rise stemmed mainly from the major adjustments made by businesses on both sides of the Pacific – especially what’s called U.S. tariff “front-running” – to deal with President Trump’s steadily escalating increases in tariffs on imports from China.

The justification for confidence that, but for the virus’ impact, the New Normal in U.S.-China trade would be reflecting more decoupling comes from examining the trends before and after President Trump’s January, 2017 inauguration. From the time Mr. Trump entered office through the end of last year, the economy grew by a total of 13.23 percent. But the value of two-way bilateral goods trade became 0.32 percent higher. In other words, for all intents and purposes, it didn’t grow at all.

That marks a major turnaround from the eight years under former President Obama, when the only first-quarter-to-first-quarter shrinkage in two-way trade (7.35 percent, between 2015 and 2016) was accompanied by weak 2.45 percent GDP growth. Moreover the only Obama first-quarter-to-first-quarter period when strong GDP growth (5.14 percent) was accompanied by only relatively modest growth in two-way bilateral trade (5.28 percent) came between 2014 and 2015. For the rest of his term in office, the growth of two-way U.S.-China goods trade significantly topped the growth of the economy, before taking inflation into account.

One of the most important concepts in free market-oriented economics is that of trade-offs, often expressed with the phrase, “There’s no such thing as a free lunch.”  Decoupling America’s economy from China’s will no doubt entail further disruption and costs related to the inevitable inefficiencies of supply chain rejiggering.  But the U.S.’ ability to grow strongly even as its economic engagement with China shrivels adds to the evidence that this lunch, if not exactly free, is a terrific value.

(What’s Left of) Our Economy: The New U.S. Trade Figures Validate Trump’s (Previous?) Hard Line

Tags

aircraft, Boeing, China, civilian aircraft, goods exports, goods imports, goods trade, manufacturing, merchandise exports, merchandise imports, merchandise trade, Mexico, North America, services trade, soybeans, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

The new U.S. monthly trade data, which bring the story up through November, are teaching President Trump and the rest of the country a crucial lesson about his total trade strategy and his approach to China trade, along with their impact on the economy as a whole. Specifically, the hard line he was pursuing with the People’s Republic before the announcement of the “Phase One” trade agreement was working like a charm.

The new numbers also make clear that many of U.S. domestic manufacturing’s troubles this year, including its mediocre trade performance, have had nothing to do with the Trump tariffs whatever – whether on Chinese products or foreign aluminum and steel. Instead, they owe to the (apparently mounting) safety woes of aircraft giant Boeing.        

The initial Phase One announcement (on October 11) revealed that the United States would hold off on an increase of tariffs from 25 percent to 30 percent on $250 billion worth of goods imports from China (largely advanced manufactures inputs) that was scheduled to go into effect on October 15. On December 13, Mr. Trump added that new levies scheduled to go into effect on December 15 on an additional $160 billion worth of merchandise imports would be canceled as well.

In return, according to the President, Beijing has agreed to “many structural changes and massive purchases of Agricultural Product, Energy, and Manufactured Goods, plus much more.” Moreover, 7.5 percent tariffs would remain on most of the rest of China’s imports along with the two governments agreeing to follow-on negotiations to address further China’s wide range of predatory trade and broader economic practices.

The new trade figures show that U.S. merchandise exports to China have indeed risen since October – by 13.69 percent month-to-month. Also up sequentially (by 21.89 percent) are total worldwide U.S. exports of soybeans – a crop whose trade performance was damaged severely by Chinese retaliatory tariffs since the latest phase of the bilateral trade war broke out.

But whether the Phase One deal and the related prospects for an enduring U.S.-China trade truce deserve much, if any, credit is open to serious doubt. For example, American goods exports to China rose sequentially four times in 2018 through September – before even the initial Phase One announcement. And two of these increases (in March and May) were bigger in percentage terms than the November improvement.

Moreover, although the November monthly shrinkage of the China’s huge bilateral goods trade surplus with the United States was substantial (15.65 percent), the surplus fell at faster rates in February and March.

Yet the cumulative success of Mr. Trump’s tariff-centric policies are clear from the new year-to-date results. On a January-through-November basis, U.S merchandise exports to China are indeed off 11.94 percent. But the much larger amount of American goods imports from China have fallen by 15.22 percent. As a result, the year-to-date merchandise trade deficit is down 16.17 percent.

Further, this progress has been made as the growth of the American global goods deficit has actually been reversed – indicating that attacking the prime source of the U.S. worldwide goods deficit is indeed helping address the global shortfall effectively.

On a year-to-date basis, the global goods deficit is down fractionally. If the trend continues for a month more, the merchandise trade gap will have narrowed on an annual basis for the first time since 2013 – a year during which the overall economy grew at a considerably slower pace (1.8 percent after inflation) than it’s been growing this year (well in excess of two percent so far in real terms).

Much of this improvement is due to America’s emergence as an oil trade surplus country (which has almost nothing to do with trade deals or other elements of trade policy, since oil trade is rarely directly affected by trade policy decisions). Yet the massive U.S. global deficits in goods other than oil have been shrinking steadily since August – from $72.75 billion that month to $63.82 billion in November, the lowest monthly total since June, 2018).

Just as important, the makeup of the remaining American merchandise deficit is becoming concentrated in North America – which benefits the United States significantly, since Mexico’s economic problems in particular often become America’s problems. And year-to-date, the total U.S. goods deficit with North America (Canada and Mexico), widened by 27.05 percent, led by a 27.64 percent rise in the Mexico gap.

Nonetheless, the merchandise deficit with Pacific Rim countries excluding China has grown by 22.47 percent year-to-date, so much more regionalization progress can clearly be made.

In other important developments revealed by today’s November trade report, the monthly U.S. combined goods and services deficit shrank sequentially by 8.31 percent to $43.09 billion from a downwardly adjusted $46.94 billion. The November figure was the lowest monthly total since October, 2016 ($42.00 billion).

November’s $63.90 billion global goods deficit (which includes oil) also represented its lowest level since October, 2016 ($62.02 billion).

Yet U.S. services trade continued to experience a weak year, as the surplus decreased sequentially in November (by 0.19 percent) and is running 4.72 below 2018’s total so far.

Total U.S. exports advanced by 0.66 percent on month in November, but are so far down fractionally on a year-to-date basis. (During the previous January-through-November period, they’d risen by 6.98 percent.)

Total U.S. imports dropped by 0.98 percent sequentially in November, and so far are down 0.14 percent year-to-date. (During the previous January-through-November period, they’d increased by 8.20 percent.)

Encouraging news came on the manufacturing trade front, too, as this sector’s enormous, longstanding deficit fell on month by 12.70 percent, to $80.93 billion. That was the lowest monthly level since March’s $76.96 billion and the biggest monthly percentage drop since February’s 20.00 percent.

U.S. manufactures exports declined by 3.81 percent on month in November, but the much greater amount of imports sank by 8.16 percent.

Year-to-date through November, the manufacturing trade deficit is up 1.69 percent – from $935.74 billion to $951.55 billion. In other words, another $1 trillion annual trade deficit is almost certainly in store for U.S. domestic manufacturing.

At the same time, this rate of increase is much slower than that from the same period in the year before: 10.98 percent.

In addition, this manufacturing progress has been recorded despite a major deterioration in U.S. civilian aircraft trade fueled undoubtedly and largely by the safety problems experienced by Boeing. 

The company – America’s only producer of wide-body civilian jetliners – has long been a major export and trade surplus champion.  But U.S. exports of civilian aircraft dropped by 5.77 percent on month in November, and have nosedived by fully 21.77 percent year-to-date.  Civilian craft imports declined at an even faster rate sequentially in November – fully 39.59 percent.  But the numbers are much smaller, and year-to-date through November, they’ve soared by 19.39 percent.

As a result, the U.S. civilian aircraft trade surplus last year through November stood at only $27.22 billion.  That’s a 33.02 percent plunge from 2018’s comparable total of  $40.64 billion.  And it means that, all else equal, if this sector’s 2019 trade performance simply equalled that of the year before, the overall manufacturing trade deficit would have barely grown at all.   

 

 

(What’s Left of) Our Economy: New Data Show Continued U.S.-China Decoupling & Broad Trade Performance Improvement

Tags

aircraft, Boeing, China, decoupling, exports, goods trade, imports, Made in Washington trade deficit, manufacturing, merchandise trade, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

With all the China trade war headlines in the news lately, the release this morning of the latest (for October) monthly U.S. trade data couldn’t be timelier. Indeed, one of the biggest takeaways from the results is that, as has been the case since the conflict began, the decoupling of the American and Chinese economies continues apace.

A second big takeaway: Boeing aircraft’s safety woes remain a major drag on domestic U.S. manufacturing’s trade performance and hence overall production (currently in mild recession) – and one having nothing to do with President Trump’s tariffs or foreign retaliation. 

And a third important conclusion:  Aside from the China trade account, the new report shows considerable improvement in some of the most important trade deficits run by the economy for decades.

One measure if decoupling is the humongous merchandise trade deficit the United States has run with China for so long. As of October, it’s down 14.60 percent year-to-date – even though the U.S. economy keeps growing. And in that vein, America’s overall non-oil goods trade deficit (the best global proxy for U.S.-China trade) rose by 4.04 percent during the same period.

The same trends are visible on the individual export and import sides, too. From January through October of this year, U.S. goods exports to China accounted for 7.13 percent of America’s worldwide total. For the comparable period last year, that figure was 8.22 percent. The analogous merchandise import figures were 19.78 percent and 23.28 percent.

Other highlights of the new monthly trade report:

>The combined goods and services trade deficit fell 7.63 percent sequentially in October, from a downwardly adjusted $51.10 billion to $47.20 billion. The October total is the lowest since May, 2018’s $44.35 billion. And the monthly drop was the biggest since January’s 12.61 percent.

>The downgrade of the September overall trade deficit was an unusually large 2.57 percent.

>The combined goods and services trade deficit is now running just 1.35 percent ahead of last year’s level. That’s a much slower rate of increase than the 13.89 percent rise between the two previous January-through-October periods.

>The overall trade deficit’s slower year-to-date increase was mainly the result of a dramatic decrease in the U.S. petroleum trade deficit – from $46.97 billion in the first ten months of 2018 to $13.93 billion between January and October of this year. That 70.34 percent nosedive contrasts with the aforementioned 4.04 percent increase in America’s non-oil goods trade deficit.

>At the same time, this “Made in Washington trade deficit” (so called because oil and services trade have little to do with the terms of U.S. trade agreements and other trade policy decisions) has been rising at a considerably slower pace this year (the aforementioned 4.04 percent rate) compared with last – when the January-through-October increase was 12.74 percent.

>Total U.S. exports dipped by 0.21 percent in October, from $207.55 billion to 207.12 billion – their lowest level since April’s $206.87 billion.

>Total U.S. exports are down 0.04 percent year-to-date – compared with a 7.45 percent rise between the preceding January-through-October period.

>”Made in Washington” exports are down 1.35 percent year-to-date, with October’s monthly $119.96 billion total the lowest since October, 2017’s $118.19 billion. Between the first ten months of 2017 and the first ten months of 2018, they grew by 5.98 percent.

>”Made in Washington” imports are up 0.55 percent year-to-date, with October’s monthly $187.54 billion total the lowest since November, 2017’s $186.99 billion. Between the first ten months of 2017 and the first ten months of 2018, they climbed by a much faster 8.26 percent.

>The also chronic and huge U.S. manufacturing trade deficit rose by 5.45 percent between September and October – from $87.91 billion to $92.70 billion. The increase followed two straight sequential declines.

>Manufactures exports in October improved by 5.03 percent, from $91.84 billion to $96.45 billion. But the much larger amount of manufactures imports increased by a faster 5.23 percent, from $179.75 billion to $189.15 billion.

>Year-to-date, the manufacturing trade deficit is up 2.76 percent, from $847.21 billion to $870.62 billion. That’s a much slower rate of increase than the 11.26 percent rise between January-through-October, 2017 and the same 2018 period.

>Interestingly, the safety woes of longtime manufacturing export superstar didn’t weigh heavily on the industry’s latest trade figures. Exports of civilian aircraft actually edged up sequentially in October – from $3.29 billion to $3.33 billion. Imports rose more, from $1.35 to $1.60 billion, but the result contributed only $210 million to the $4.79 billion monthly rise in the total manufacturing trade deficit.

>Longer term, though, it’s a much different story. For the first ten months of this year, civilian aircraft exports have decreased from $46.03 billion to $37.21 billion. Import, however, are up from $10.06 billion to 12.16 billion.

>As a result, the civilian aircraft trade surplus is down on a year-to-date basis from $35.97 billion to $27.15 billion. And this $8.82 billion drop-off represents 37.68 percent of the $23.41 billion worsening of the overall manufacturing trade balance so far from 2018 to 2019. Moreover, it’s a far cry from the days when the civilian aircraft sector was strengthening the U.S. manufacturing trade balance.

It’s true that when examining the improvement of trade performance on an absolute or relative basis, the economy’s growth rate has to be taken into account. In this vein, though, the rates of improvement are all significantly faster than the slowdown being experienced by the wider economy. That development doesn’t lend itself to pithy headlines (or catchy campaign slogans). But by any reasonable standard, it’s solid progress.

(What’s Left of) Our Economy: New U.S. Trade Figures Start Creating a Trump China Scorecard

Tags

China, exports, goods trade, imports, manufacturing, merchandise trade, tariffs, Trade, Trade Deficits, {What's Left of) Our Economy

After a roughly month-long shutdown-related delay, the latest U.S. monthly trade figures were finally released this morning – bringing the story up only through November. But although they’re clearly somewhat dated (especially considering how fast China trade-related events are moving), they reveal some noteworthy China-related developments and point to some equally noteworthy potential China-related trends.

The new trade report makes clear that, at least through November, President Trump’s tariffs, and possibly the threat of more, are influencing trade flows. And there’s even some evidence that, although the U.S. bilateral goods deficit that so bothers Mr. Trump is moving in the wrong direction, the underlying trends are much more favorable. Here’s what I mean.

It’s true that, on a year-to-date basis, the American goods deficit with China is up considerably. In fact, the 10.90 percent widening of this gap during this period is the biggest since the same period between 2010 and 2011 – when the U.S. economy was conclusively moving out of recession, and the deficit jumped by 22.38 percent.

But the November monthly figures point to a more complicated picture, especially keeping in mind that two big sets of U.S. tariffs have been imposed on goods imports from China since last July.

For example, despite widespread reports of tariff “front-running” late last year aiming at avoiding future levies, the U.S. merchandise trade deficit fell on a monthly basis by 12.16 percent – from $43.01 billion in October to $37.86 billion. Yes, the October trade gap represented the fourth straight monthly record high. But the November drop was the biggest overall since last February’s 18.61 percent. And the November total was the lowest since August’s $38.57 billion.

Moreover, because U.S.-China trade is so seasonal (think, in large measure, “Christmas”), it’s instructive to compare last November’s results with its most recent predecessors. And this exercise reveals that the sequential deficit decline was the biggest November monthly decrease since recessionary 2008’s 17.41 percent.

A similar pattern emerges for exports. America’s goods sales to China in November fell sequentially by 5.10 percent, from $9.13 billion to $8.66 billion. That’s the lowest such level since May, 2016 ($8.54 billion) and the lowest November level since recessionary, 2009 ($7.37 billion). And the monthly November merchandise deficit decrease was the biggest since recessionary 2008’s 14.83 percent. Interestingly, though, last November’s monthly export drop was smaller than October’s (6.73 percent).

Goods imports from China were off markedly as well – by 10.93 percent sequentially in November, from October’s all-time high of $52.23 billion. The $46.53 billion November total was the lowest since last July’s $47.10 billion.

In addition, the monthly decrease was the biggest since last February’s 14.68 percent, and the biggest November fall-off since 2008 (16.95 percent).

But U.S. policy’s effectiveness can’t accurately be evaluated unless the China trade flows are examined in the context of broader American economic trends and in particular manufacturing trends – since bilateral trade flows are so manufacturing-heavy. And what the key numbers suggest is that, even though the merchandise deficit with China has grown rapidly and indeed is heading for an all-time annual record, American industry is starting to reduce its dependence on Chinese parts, components, and other inputs.

The main evidence is the relationship between the growth of U.S. manufacturing production on the one hand, and the growth of U.S. goods imports from China on the other. If the resulting ratio is rising, then so is that U.S. dependence. If it’s falling, the reverse would seem to be true. So here are those figures for the first eleven months of each year going back to 2010-11, when the current U.S. economic recovery finally showed some real legs. (Incidentally, RealityChek regular may recall a similar exercise last November regarding American manufacturing’s growth and the global manufacturing trade deficit.)

2017-18: 4.64:1

2016-17: 3.41:1

2015-16: the deficit fell by 5.94 percent while manufacturing grew an inflation-adjusted 0.03 percent.

2014-15: the deficit fell by 7.21 percent while manufacturing shrank an inflation-adjusted 2.02 percent

2013-14: 4.18:1

2012-13: 4.66:1

2011-12: 3.18:1

2010-11: 7.80:1

According to the above table, U.S. manufacturing’s dependence on Chinese inputs has grown faster between the first eleven months of 2016-17 and the first eleven months of 2017-18. But the latest year-to-date results are much lower than those for 2010-11. And this year’s numbers are probably also inflated by that tariff front-running. We’ll know more as the figures for the next few months come in, but with the possibilities live both of tariffs going up and coming off, definitive conclusions still look pretty far off.