(What’s Left of) Our Economy: Where China Trade Retaliation Could Really Hurt

Tags

China, import penetration, imports, intermediate goods, manufacturing, The Wall Street Journal, Trade, U.S. Department of Commerce, {What's Left of) Our Economy

According to a Wall Street Journal news report this weekend, China is considering an escalation in its trade conflict with the United States that could cause real problems for the American economy: restricting its “sales of materials, equipment and other parts key to U.S. manufacturers’ supply chain.”

There’s no significant statistical evidence that the U.S. tariffs imposed on Chinese-made steel under the Obama administration have harmed domestic American manufacturing, and as I’ve shown in several posts (e.g., here, here, and here) as of now, there’s no such evidence either that the Trump administration’s more sweeping, worldwide tariffs on aluminum as well as steel have inflicted any harm on those American industries that are significant users of these metals.

But Chinese limits on exports of the parts and components that go into a wide variety of goods manufactured in the United States could produce a very different story. The U.S. government hasn’t officially tracked this development. Indeed, the share of various American manufacturing markets captured by imports from anywhere, or the global total, hasn’t been monitored since 1995, when the Commerce Department’s annual U.S. Industrial Outlook report was discontinued.

So for more than twenty years, there’s been none of the kind of government-generated information that President Trump and his aides can consult in order to assess the possible damage to domestic industry. This information vacuum – which of course predates the current administration – speaks volumes about how cavalierly Washington has taken the responsibility of safeguarding crucial American economic interests against predatory foreign competition

Yet unofficial data is available, in the form of China import penetration rates for dozens of advanced manufacturing sectors that I calculated for several years through 2011. (Here’s the latest.) I haven’t published any follow-ups since 2013’s edition (which presented the 2011 data – the latest then available) because each year, more and more of the raw output or trade figures I needed to perform the calculations seemed unreliable. Specifically, they would produce results that were mathematically impossible (e.g., imports accounting for more than 100 percent of the entire U.S. market for various sectors, or results that exhibited wildly excessive swings year-to-year).

The 2011 results, however, are worrisome because they revealed that products from China had grabbed noteworthy shares of American markets for large numbers of high value industrial parts and components, as well as industrial machinery categories (including much of the equipment used by U.S. industry to produce a wide range of intermediate and final goods). Further, in many instances, Chinese market shares had increased at jaw-dropping rates.

Even more important, in the seven intervening years, most of these Chinese import penetration rates have surely risen to greater heights still.

China’s capture of these markets and the leverage it undoubtedly creates reflects one of the most crucial failures of America’s trade policies in recent decades. The very magnitude of China’s success might prevent Beijing from pulling the trigger on the proposal reported by The Journal – i.e., that the domestic U.S. industry has simply become too big a market for China to exit. Satisfactory substitutes from other countries, or from domestic sources, might also be available. But it’s also possible that in many key manufacturing sectors, Beijing has the U.S. economy over a barrel.

What is certain is that knowledge is power, and that if the United States doesn’t study more carefully its vulnerabilities to foreign retaliation to more assertive trade policies such as the Trump administration seems determined to pursue, its chances of prevailing in the ensuring showdowns won’t look promising. And voters’ ability to judge campaign promises to this effect will be almost nil.

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(What’s Left of) Our Economy: China, Manufacturing, the EU, & Canada (sort of) Led the New Trade Deficit Surge

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Canada, China, EU, European Union, exports, imports, Made in Washington trade deficit, manufacturing, Mexico, NAFTA, North American Free Frade Agreement, oil, real trade deficii, recovery, services, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

With President Trump still threatening to slap $200 billion worth of tariffs on Chinese imports this week, this morning’s trade figures from the Census Bureau show that the U.S. goods deficit with China hit a new monthly record of $36.83 billion. The U.S. manufacturing trade shortfall reached an all-time high as well – $92.29 billion. And as talks to revamp NAFTA (the North American Free Trade Agreement) continue, America’s goods gap with Canada jumped by nearly 58 percent on month, but the merchandise shortfall with Mexico sank by more than 25 percent.

The goods gap with the European Union, meanwhile, reached record monthly heights as well ($17.59 billion). The sequential increase of 50.03 percent was the greatest since October, 2013 (58.87 percent) and was driven by the biggest monthly plunge in U.S. merchandise exports (15.72 percent) to the region since July, 2006 (16.62 percent).

America’s combined goods and services trade deficit rose at its fastest pace (9.50 percent) since March, 2015 (35.63 percent), to $50.08 billion from a downwardly revised $45.74 billion. Total monthly imports of $261.16 billion were a new record as well, and total monthly exports fell for the first time since January – to $211.08 billion. Other all-time monthly highs were recorded for services exports ($70.29 billion), services imports ($47.22 billion), goods imports ($213.94 billion), and current dollar oil exports ($15.77 billion). Pre-inflation oil imports of $20.32 billion were the highest since December, 2014 ($23.58 billion). Though not a new monthly record in July, the goods trade deficit did increase that month at its fastest pace (6.11 percent) since November, 2016 (6.76 percent).

Although these July trade figures come too early in the third quarter to calculate trade’s drag on the current economic recovery through that period, if the monthly deficits remain in this neighborhood, trade’s subtraction from cumulative growth since the expansion began would rebound after falling during the second quarter. As of the revised second quarter figures, the increase in the real total trade deficit since mid-2009 had reduced inflation-adjusted growth during this period by 11.79 percent, or $398.50 billion. That was down from the $457.20 billion drag (14.33 percent) as of the final first quarter results.

The trade drag numbers are much greater for the Made in Washington trade deficit – that portion of U.S. trade flows most heavily influenced by trade agreements and similar trade policy decisions. As a result, it omits trade in services (where liberalization efforts remain at an early stage) and in energy (which is rarely discussed in trade diplomacy as such). The final first quarter figures pegged this growth drag at 17.37 percent, or $523.88 billion worth of lost constant dollar growth. As of the revised second quarter numbers, this growth bite had shrunk to 14.88 percent, or $502.90 billion worth of lost real growth.

(What’s Left of) Our Economy: New GDP Figures Confirm Trade as a U.S. Growth Booster – for Now

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exports, GDP, goods trade, gross domestic product, imports, inflation-adjusted growth, real GDP, real trade deficit, recovery, tariffs, trade deficit, {What's Left of) Our Economy

The revised second quarter U.S. government figures for change in the gross domestic product (GDP) came out this morning, and their trade highlights broadly confirm the picture painted in last month’s advance results: A significant sequential reduction in the inflation-adjusted U.S. trade deficit keyed by a jump in goods exports aimed at avoiding impending or threatened tariffs made an impressive contribution to a strong quarterly real growth rate.

As a result, the new data also left in place one of the biggest questions hanging over the second quarter’s performance:  Will this trade boost to growth peter out?

The new results show that this export front-loading was fractionally smaller than first reported, with merchandise exports rising sequentially in the second quarter by 12.50 percent on an annualized basis, not the 12.64 percent initially estimated. Yet this increase was still the biggest since the 15.71 percent jump in the fourth quarter of 2013. The second quarter’s goods exports also still amounted to a new record: $1.8078 trillion annualized.

In addition, the quarterly drop in the combined goods and services trade deficit was steeper than originally reported. The gap, which stood at $902.4 billion annualized in the first quarter (the biggest such total since the $932.5 billion recorded in the third quarter of 2006), decreased to $843.5 billion in this year’s second quarter, not the $849.9 billion reported last month.

This sequential slide, moreover (26.01 percent annualized), was still the biggest since the 36.96 percent plunge in the fourth quarter of 2013.

Trade’s contribution to after-inflation second quarter growth remained solid in the revised figures, at 1.03 percentage points of 4.16 percent annualized growth. That was only marginally lower than the 1.04 percentage point contribution to the 4.00 annualized rate originally estimated.

Even better, the new second quarter results reduced the drag on economic growth that’s been exerted by the expansion of the trade deficit since the current economic recovery began in mid-2009.

As of the final GDP results for the first quarter of 2018, the trade shortfall’s increase had reduced cumulative price-adjusted growth during the expansion by $457.20 billion, or 14.33 percent. The first read on second quarter GDP reduced these figures to $404.70 billion, or twelve percent. This morning’s revision shrunk them further – to $398.50 billion, or 11.79 percent.

The same has held for the growth drag of the Made in Washington trade deficit – comprised of trade flows heavily affected by trade policy and trade agreements, and which therefore leaves out trade in oil and services.

The final first quarter GDP figures pegged this trade drag at 17.37 percent of cumulative real growth during the expansion – a $523.88 billion loss. According to this morning’s revised second quarter estimate, the Made in Washington deficit’s bite from real growth declined to 14.88 percent, or $502.90 billion.

(What’s Left of) Our Economy: The New York Fed Whiffs on Tariffs and Trade Policy

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China, currency manipulation, imports, intermediate goods, New York Fed, non-tariff barriers, subsidies, tariffs, Trade, Trade Deficits, Trump, Trump tariffs, value-added tax, VAT, {What's Left of) Our Economy

Do you want to know how slipshod a new post from the New York branch of the Federal Reserve on tariffs and trade deficits is? I’m not a Ph.D. economist, and it took me about thirty seconds to spot no less than four fatal flaws.

The post, written by a senior Fed economist and three academic colleagues (including one from a Chinese university), argues that President Trump’s tariff-heavy trade policies are likeliest to backfire on the administration and the entire U.S. economy by widening, not narrowing, the country’s trade deficit. Their main evidence? The experience of China after it entered the World Trade Organization (WTO) at the end of 2001.

According to the authors:

“While more costly imports are likely to reduce the quantity and value of imports into the United States, the story does not stop there, because we cannot presume that the value of exports will remain unchanged. In this post, we argue that U.S. exports will also fall, not only because of other countries’ retaliatory tariffs on U.S. exports, but also because the costs for U.S. firms producing goods for export will rise and make U.S. exports less competitive on the world market. The end result is likely to be lower imports and lower exports, with little or no improvement in the trade deficit.”

The Chinese example, they claim, supports this hypothesis because China significantly reduced its tariffs following WTO entry (i.e., pursued a policy exactly the opposite of that sought by Mr. Trump), and both its exports as well as its imports soared. Moreover, the authors found that

“Focusing on China’s exports to the United States…shows that by lowering its own tariffs on imported inputs, China reduced its production costs and increased productivity, enabling Chinese firms to enter the U.S. export market and compete with other firms. With a fall in production costs, Chinese firms charged lower prices on goods exported to the United States and increased their U.S. market shares.”

But the weaknesses in this analysis are positively jaw-dropping. First, the data supporting that latter key finding is no less than a dozen years out of date.

Second, the post completely fails to take into account the possible effects over time of a U.S. failure to provide trade protection for sectors, like steel, that represent key inputs for manufacturing. Although obviously the cheaper they are, the more competitive the industries that utilize them will be, intermediate goods sectors (including not only materials like metals but machinery and equipment of all kinds) could represent as much as nearly half of America’s entire manufacturing complex. Should the United States just sit back and watch those sectors trashed by foreign competition?

Third, and even more important, should the United States accept this result if much of the foreign competition faced by its manufacturers is predatory? In this vein, the Fed post contains not a single word about China’s currency manipulation – which kept the value of the yuan significantly and artificially suppressed throughout the early post-WTO admission years (and arguably still does) for reasons completely unrelated to trade liberalization, and which gave Chinese products a major and wholly artificial advantage in China’s own market, the U.S. market, and markets around the world.

Fourth, the authors similarly ignore the impact of China’s value-added tax (VAT) system, which not only surrounds the entire Chinese economy with high, tariff-like walls that nonetheless aren’t technically considered tariffs, but which provides comparably impressive subsidies for China’s exports.  Not to mention the other massive supports Beijing offers to manufacturing, or its still (and perhaps increasingly) formidable array of non-tariff trade barriers.

Indeed, all these non-market practices no doubt largely explain why China has both supercharged its exports since it entered the WTO and impressively raised the levels of Chinese inputs they contain. 

In baseball, three strikes means “you’re out.” At the New York Fed, by contrast, four strikes apparently earns a “well done.”

(What’s Left of) Our Economy: The Real Trade Messages of the New GDP Report

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exports, GDP, Great Recession, gross domestic product, imports, inflation-adjusted growth, Made in Washington trade deficit, real exports, real imports, real trade deficit, recovery, tariffs, Trade, Trade Deficits, Trump, {What's Left of) Our Economy

Friday’s government report on U.S. economic growth in the second quarter of this year was a treasure trove of newsworthy information. It not only provided the first peak at how President Trump’s imposed and threatened tariffs have affected the nation’s economic performance. It also incorporated literally decades’ worth of revisions that contained some important surprises about the economy’s strengths and weaknesses – in particular over the last five years. These new findings entail considerably more than trade, but let’s focus on that subject for today, since it’s been making so many headlines.

As widely expected, these new figures on the gross domestic product (GDP) and how it changed in inflation-adjusted terms showed that the threatened tariffs and retaliatory levies boosted American exports significantly. The reason? Many foreign customers for U.S. goods decided to “front-load” their purchases to avoid the paying the new charges for as long as possible.

On a sequential basis, this first of this year’s three estimates for the second quarter judged that U.S. merchandise exports jumped by 8.96 percent on an annualized basis. That’s the biggest such increase since the 11.72 percent surge in the fourth quarter of 2013. At the same time, the contribution to total quarterly growth made by goods exports was nothing special. In fact, at 1.12 percentage points out of the quarter’s 4.10 percent annualized rate of inflation-adjusted expansion, they fueled less real growth relatively speaking than they did in the fourth quarter of last year, when they were responsible for 0.79 percentage points of that period’s 2.30 percent annualized constant dollar growth.

Interestingly, the tariffs didn’t result in U.S. customers of overseas producers displaying the same interest in maximizing their imports to the greatest possible extent. Indeed, these purchases inched up sequentially by only 0.12 percent at an annual rate after inflation. Yet at $3.4241 trillion after inflation and annualized, they set a new record, nosing out the previous quarter’s $3.4201 trillion.

Thanks to exports’ performance, which brought their quarterly total to a new record ($2.5742 trillion annualized in real terms) as well, the inflation-adjusted trade deficit plummeted by 23.27 percent annualized to $849.9 billion. (The absolute numbers are different from those reported in previous RealityChek posts because the new GDP report is presenting the inflation-adjusted figures using 2012 dollars, not 2009 dollars.) That quarterly trade shortfall was the nation’s smallest since the $845.9 billion annualized recorded in the third quarter of last year. And the sequential decrease was the biggest since the 36.96 percent nosedive in the fourth quarter of 2013.

In addition, according to the revisions, America’s trade performance between the fourth quarter of 2012 and the second quarter of this year was considerably worse than previously estimated. Combined goods and services exports rose a bit faster (at a 2.6 percent rather than a 2.5 percent average annual pace in real terms). But total import growth was much stronger during this period – a 4.2 percent average annual increase in constant dollars rather than 3.7 percent growth.

Trade deficits have therefore been higher than previously judged. Again, the changeover from reporting the figures in 2009 dollars to using 2012 dollars makes comparing the old and new levels pointless. But the difference can become clear by examining these deficits as a share of the total economy. Here are the previously reported percentages:

2013: 2.59 percent

2014: 2.67 percent

2015: 3.31 percent

2016: 3.51 percent

2017: 3.64 percent

And here are the revised data:

2013: 3.23 percent

2014: 3.42 percent

2015: 4.17 percent

2016: 4.45 percent

2017: 4.76 percent

Last year’s level was the highest for any year since 2007’s 5.27 percent – just before the Great Recession struck. It’s still a far cry from the historic quarterly high of 6.10 percent, set in the fourth quarter of 2005. But the trend shows that the real trade deficit has been climbing steadily toward these heights.

In fact, during the first quarter of this year, the overall real trade deficit hit 4.92 percent of GDP, before falling back to 4.59 percent in the second.

The revised GDP figures also shed new light on trade’s drag on economic growth during this sluggish recovery. Before this revision, the increase in the constant dollar trade deficit since the expansion began, in the middle of 2009, had sliced $302.1 billion off of the economy’s cumulative inflation-adjusted growth through the second read on first quarter GDP. That amounted to a trade drag of 9.99 percent.

With the revision in place, the trade drag as of the first quarter’s final read was $457.2 billion – or 14.33 percent. The decline in the price-adjusted trade gap as of Friday’s first read on second quarter GDP pushed the drag down to twelve percent. But that figure still represented $404.7 billion in lost real growth.

The growth drag created by the increase in the Made in Washington trade deficit has been much bigger. Before the new GDP revision, the growth of this trade shortfall (which is comprised of constant-dollar trade flows heavily affected by trade policy and trade agreement, and therefore leaves out trade in oil and services) had cut cumulative recovery era growth by 17.37 percent in real terms, or $523.88 billion, as of the final first quarter figures.

It won’t be possible to calculate revised figures for the first quarter and new figures for the second quarter until this Friday, when we’ll get the next monthly trade report (for June).

(What’s Left of) Our Economy: The Chamber’s “Trade Works” Campaign is Clearly Hoping that Trade Fakery Works

Tags

exports, imports, recovery, states, tariffs, Trade, Trade Deficits, trade surpluses, Trump, U.S. Chamber of Commerce, {What's Left of) Our Economy

The U.S. Chamber of Commerce is at it again: It’s launched a public relations campaign to strengthen American support for conventional trade liberalization policies (or at least to weaken support for President Trump’s increasing resort to tariffs to overhaul these policies). Its campaign focuses on how the old trade status quo was benefiting the U.S. economy. It’s using “state-by-state analysis to argue that Trump is risking a global trade war.” And as usual, it’s pretending that national and state trade flows (and their employment effects) consist of and stem only from exports.

Also as usual – there’s an excellent reason for the Chamber to resort once again to such intellectual dishonesty. Since the nation as a whole is running a huge and rising trade deficit that has cut into the subpar economic growth generated by the current expansion, it’s practically inevitable that the great majority of the fifty states have seen worsening trade balances significantly slow their recoveries as well.

And thanks to the Commerce Department, which tracks individual states’ merchandise exports and imports, it’s easy to see just how greatly the trade losers outnumber the trade winners. (State-level data on much smaller flows of services exports and imports are not available.) 

Specifically, from the year the current recovery began (2009) through last year, 26 states have seen their merchandise trade deficits increase, two have seen such trade surpluses fall, and in five, goods surpluses have turned into deficits. So in all, trade has dragged on growth during the recovery for 33 of the 50 states.

Of the 17 states that have improved their trade performances during this period, five have seen their deficits shrink, six have generated higher surpluses, and six have turned deficits into surpluses.

These data thoroughly debunk the claim made by the Chamber’s campaign that “Trade Works. Tariffs Don’t.” So it’s clear that what this pillar of the Offshoring Lobby is actually counting on is that trade fakery works.

(What’s Left of) Our Economy: A U.S. Trade Figures Update with a Special Focus on China & Trump “Foe” EU

Tags

Canada, China, EU, European Union, exports, goods trade, high tech goods trade, imports, manufacturing, merchandise trade, services trade, tariffs, Trade, Trade Deficits, trade surpluses, Trump, {What's Left of) Our Economy

The May U.S. trade figures are no longer exactly new, having been released July 6. But with a big round of U.S. tariffs just imposed on China, and many more possibly on the way (along with automotive trade curbs that would affect most major U.S. economic competitors), they’re still incredibly newsy. So here’s a quick rundown of some highlights closely related to recent headlines, starting with the China figures.

>The enormous American goods trade deficit with China shot up by 18.68 percent sequentially, from $27.96 billion to $33.19 billion. The May shortfall was the biggest since January ($35.95 billion) and the increase was the greatest since May, 2016 (19.49 percent).

>The widening of the trade gap was largely driven by a 14.56 percent monthly jump in U.S. merchandise imports from China, to $43.80 billion.

>That level was also the highest since January ($45.79 billion) and the increase was the biggest since March, 2015 (30.33 percent).

>U.S. goods exports to China rose on month by only 1.69 percent, to $10.61 billion.

>Year-to-date, the merchandise deficit is running 9.92 percent higher than last year’s rate – which resulted in a record $375.58 billion bilateral shortfall.

>Also, year-to-date, U.S. goods exports to China have increased by 7.79 percent, while the far larger amount of imports is up by 9.36 percent.

>The trade figures for another competitor in President Trump’s cross-hairs, the European Union (EU) tell a different story. In May, the goods trade deficit with this grouping – labeled a trade “foe” by Mr. Trump – declined by 8.57 percent, from $14.64 billion to $13.39 billion.

>U.S. merchandise exports to the EU advanced by 4.34 percent sequentially in May, to $27.97 billion, and American sales to the group have been improving steadily since November. Indeed, on a year-to-date basis, they’ve improved by a healthy 14.02 percent.

>The merchandise deficit, however, has risen by 14.77 percent year-to-date as of May, with the larger amount of imports up nearly as fast: 14.27 percent.

>The U.S. goods deficit with Canada, another country that has drawn Mr. Trump’s ire, nearly doubled on month in May, from $806 million to $1.50 billion. But because this shortfall has fallen to such low levels in recent years, largely because of reduced American energy imports, these figures now tend to be volatile.

>U.S. merchandise exports to Canada – still America’s largest single country trade partner – increased 4.42 percent on month in May, to $26.81 billion, while goods imports rose by 8.53 percent, to $28.31 billion

>But although that import figure was the highest such monthly total since December, 2014’s $28.83 billion, the year-to-date American bilateral merchandise deficit has plummeted by 40.78 percent, from $9.78 billion to $6.08 billion.

>U.S. goods exports to Canada year-to-date are up by 4.98 percent, as of May, and goods imports have risen by 6.02 percent.

>U.S. global trade flows set a series of multi-month bests and all-time records in May.

>The combined May goods and services deficit fell by 6.57 percent sequentially to $43.05 billion – the lowest such total since October, 2016’s $42.64 billion.

>The goods deficit declined by 3.77 percent on month to $65.79 billion – the lowest since last August’s $65.49 billion.

>On the services side, the May surplus of $22.74 billion bested the April result by 2.04 percent, and fell just short of the record $22.77 billion recorded in February, 2015.

>Total exports, which rose sequentially by 1.94 percent, to $215.33 billion, hit their fourth straight monthly record.

>U.S. goods exports, which increased on month by 2.62 percent, to $144.89 billion, set their third straight such record.

>U.S. services exports, which advanced by 0.56 percent, to $70.44 billion, set their 13^th straight monthly record.

>U.S. non-oil goods exports (pre-inflation) in May climbed by 2.75 percent on month, to $129.98 billion, and set their third straight monthly record.

>U.S. current dollar oil exports inched up by 0.77 percent sequentially in May, to $14.18 billion – the second best performance on record after December, 2013’s $14.27 billion.

>The immense American manufacturing trade deficit in May continued its march toward the $1 trillion-dollar annual mark, and a new yearly record.

>The May manufacturing trade deficit totaled $85.05 billion – its fourth all-time highest, and an increase of 8.95 percent sequentially.

>Manufactures exports improved on month by 4.89 percent, from $96.72 billion to $101.45 billion. But the much greater amount of manufactures imports increased even more – by 6.71 percent, from $174.79 billion to $186.50 billion.

>Year-to-date, the manufacturing trade shortfall reached $397.48 billion in May – 11.89 percent higher than the comparable level in 2017, when the gap finished the year at $929.14 billion.

>Year-to-date manufacturing exports have increased by 7.38 percent, but imports are 9.27 percent higher.

>America’s trade deficit in advanced technology products also keeps heading to a new annual record.

>On month, the chronic shortfall in this category rose by 8.44 percent, to $10.32 billion.

>That increase brought the year-to-date deficit to $45.37 billion –32.62 percent higher than the comparable total last year, when this full-year trade gap reached $110.93 billion.

(What’s Left of) Our Economy: The First Quarter Trade Deficit Kept Rising, & its Growth Rate Kept Falling

Tags

exports, GDP, Great Recession, imports, inflation-adjusted growth, Made in Washington trade deficit, real exports, real GDP, real growth, real imports, real trade deficit, recovery, trade deficit, {What's Left of) Our Economy

For the second straight time, a higher estimate of the inflation-adjusted trade deficit weakened the real U.S. growth figure for the first quarter. According to the final (for now) read for the first quarter, the constant dollar trade shortfall was $656.8 billion – higher than the $650.9 billion reported in the previous growth figure for the first quarter. And partly because this increase turned net trade into a minor (0.04 percentage point) drag on growth, the quarter’s real GDP increase was marked down from a 2.16 percent annualized improvement to 1.98 percent.

Moreover, the new after-inflation trade deficit remained the second highest such quarterly figure since the $703.2 billion recorded for the third quarter of 2007 – just before the Great Recession began. It was also slightly higher the final (for now) fourth quarter level of $653.9 billion.

As with the second GDP report for the first quarter, the quarterly records for total exports and goods exports remained intact, but declined from the levels previously reported. The after-inflation services export figure, however, came in higher (at $690.8 billion on an annual basis) – and represented a new record as well. All of the latest import figures were upgraded from their previously reported record levels – the same pattern as with the first quarter’s second GDP report. Similarly, the sequential slowdowns in the growth of total imports and goods imports were not quite as great as previously reported (76.49 percent as opposed to 79.17 percent, and 83.99 percent versus 86.21 percent, respectively). But they were still the greatest such slowdowns since the fourth quarter of 2010 and the first quarter of 2009, respectively. The latter date came at the depths of the Great Recession.

Trade’s substantial drag on cumulative growth during the current U.S. recovery became heavier, according to the new GDP figures – reducing real growth by 9.99 percent ($301.2 billion), not the 9.41 percent reported in the second read. This trade drag was also up from the fourth quarter’s 9.82 percent ($287.6 billion). But the much larger hit to growth from the recovery-era increase in the Made in Washington deficit (which consists of trade flows impacted greatly by U.S. trade policy) actually decreased sequentially – from 18.38 percent of that cumulative growth ($538.81 billion) to 17.37 percent ($523.88 billion).

Here are the trade highlights from Thursday morning’s final (for now) report on first quarter GDP growth from the Commerce Department:

>The Commerce Department’s final read on gross domestic product (GDP) in the first quarter of this year revealed that America’s trade performance depressed the initially reported inflation-growth figure for the period for the second straight time.

>Partly because this latest estimate judges that the quarter’s after-inflation annualized trade gap was actually $656.8 billion rather than $650.9 billion, the period’s annualized growth figure was reduced from 2.16 percent to 1.98 percent.

>The constant dollar trade shortfall estimate was also (0.44 percent) higher than the fourth quarter of 2017’s $653.9 billion – and replaced it as the second highest such figure since the $703.2 billion during the third quarter of 2007 – just before the Great Recession began.

>Moreover, whereas the previous estimates pegged net trade as a minor contributor to growth during the first quarter (according to the second read, fueling 0.08 percentage points of the 2.16 percent real annualized growth), this final read determined that trade subtracted 0.04 percentage points from the lower 1.98 percent real annualized growth.

>As with the previous report on first quarter growth, levels of inflation-adjusted total exports and goods exports remained at record levels in the latest GDP data, but came in slightly lower than initially reported. Yet real services trade broke this pattern, as a higher export estimate lifted their new quarterly record higher.

> Real total exports are now judged to have been $2.2496 billion annualized, not the $2.2529 trillion estimated in the second first quarter read. As a result, the sequential increase on an annualized basis was 0.89 percent, not 1.04 percent.

>The new real total export total nonetheless remained the category’s fifth straight quarterly record.

>Real goods exports are now judged to have been $1.5622 trillion on an annual basis, not the $1.5696 trillion previously reported. As a result, the annualized sequential increase was 0.85 percent, not the 1.32 percent previously reported.

>But this too was a fifth straight quarterly record.

>Real services exports – the exception to the pattern – are now judged to have been $690.8 billion annualized, not the$687.4 billion previously reported. As a result, the annualized sequential increase was 0.96 percent, not 0.60 percent, and this category’s record performance improved further.

>On the import side, the pattern displayed in the previous read – quarterly records remaining intact but at lower levels – was repeated for all major categories.

>The first quarter’s total real import figure has now been revised up from $2.9038 trillion on an annual basis to $2.9065 billion. As a result, the sequential increase is now 0.79 percent, not 0.70 percent. The new total is still a second straight quarterly record.

>The goods imports total is now estimated at $2.4015 trillion annualized, up from $2.3985 trillion figure previously reported. As a result, the sequential growth is 0.65 percent, not the 0.56 percent previously reported, but the level is still a second straight quarterly record, too.

>Real services imports for the first quarter are now estimated at $503.3 billion annualized, not the $502.9 billion previously reported. As a result, their sequential growth is now 1.43 percent, not the 1.35 percent previously reported. But this new total is a record, too.

>Also as with the previous GDP report, the new figures show that both the total imports and the goods imports constant dollar sequential growth rates have experienced their biggest sequential slowdowns in years – though these slowdowns are now judged to be slightly more modest.

>Total real imports grew at a 0.79 percent quarter-to-quarter rate in the first quarter – faster than the previously reported 0.70 percent. But compared with the fourth quarter’s 3.36 percent rate, its still 76.49 percent lower – and it’s still the biggest such change since the 81.87 percent reported for the fourth quarter of 2010.

>Inflation-adjusted goods imports grew sequentially in the first quarter by 0.65 percent, not the 0.56 percent rate previously reported. But that rate was still 83.99 percent lower than the fourth quarter’s 4.06 percent – and the biggest such change since the 87.63 percent drop in the first quarter of 2009 – near the low point of the Great Recession.

>The upwardly revised first quarter real trade deficit figure increased the growth drag created by the increase in this shortfall during the current economic recovery.

>As of the previous GDP read, the real trade deficit’s widening since mid-2009 – when the current recovery began – reduced cumulative growth by 9.41 percent, or $284.6 billion.

>As of the latest GDP report, these figures have risen to 9.99 percent, and $301.2 billion.

>The new first quarter figures are also higher than the fourth quarter figures: 9.82 percent and $287.6 billion, respectively.

>The growth drag of the increase in the Made in Washington trade deficit – which focuses on the non-oil goods trade flows most heavily influenced by trade agreements and other trade policies – has been much greater during the recovery.

>The previous first quarter read pegged this growth drag at $535.09 billion – which had cut the recovery’s cumulative constant dollar GDP increase by 18.26 percent.

>The new read actually reduced the growth drag to 17.37 percent – or $523.88 billion in lost growth.

>And the new figures are also smaller than those for the fourth quarter – 18.38 percent, and $538.81 billion.

(What’s Left of) Our Economy: Higher Trade Deficit Pulls Down First Quarter U.S. Growth Rate

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exports, GDP, gross domestic product, imports, Made in Washington trade deficit, real GDP, real trade deficii, recovery, Trade, trade deficit, {What's Left of) Our Economy

The second read on the inflation-adjusted first quarter gross domestic product (GDP) revealed that the slight growth slowdown (from a 2.30 percent annualized increase to 2.16 percent) was driven by a higher trade deficit figure ($650.9 billion annualized) than initially reported ($645.9 billion annualized). This figure – though still lower than the fourth quarter’s $653.9 billion – remained the second highest price-adjusted quarterly trade shortfall since the $703.2 billion total reported for the third qurter of 2007 – just before the onset of the Great Recession.

The quarterly records for all major import and export figures remained intact in the new data, but all of the latest export totals came in slightly lower, and all of the latest import figures came in slightly higher. At the same time, the sequential slowdowns in the growth of total imports and goods imports (79.17 percent and 86.21 percent, respectively) remained the greatest since the first quarter of 2011 and the first quarter of 2009, respectively. The latter date came at the depths of the Great Recession.

The new GDP figures showed that trade’s drag on cumulative growth during the current recovery remained substantial – and the first quarter total (9.41 percent) was slightly higher than the initially reported 9.23 percent. As a result, though, this trade drag was down somewhat from the 9.82 percent it hit as of the fourth quarter of last year. But the subtraction from cumulative constant dollar economic growth was still an impressive $535.09 billion.

Here are the trade highlights from this morning’s second report on first quarter GDP growth from the Commerce Department:

>The Commerce Department’s second read on gross domestic product (GDP) in the first quarter of this year revealed that a higher quarterly inflation-adjusted trade deficit than initially estimated helped bring about the slightly lower growth figure contained in the new report.

>The increase in the quarterly trade deficit estimate (from $645.9 billion annualized to $650.9 billion annualized) contributed to the real quarterly growth estimate being reduced from 2.30 percent to 2.16 percent.

>The first quarter figure was lower than the fourth quarter’s $653.9 billion. But it still represented the second highest such trade shortfall since the $703.2 billion reported in the third quarter of 2007 – just before the Great Recession struck.

>Because of this quarterly decline in the after-inflation trade deficit, trade still added to constant dollar economic growth in the first quarter. But the contribution fell from a 0.20 percentage point contribution to 2.30 percent annualized growth to a 0.08 percentage point contribution to 2.16 percent annualized growth.

>Levels of all major categories of real American exports and imports remained at record levels in the latest GDP data. But all of the export figures came in slightly lower than initially reported, and all the import figures came in higher.

> Real total exports are now judged to have been $2.2529 trillion in the first quarter on an annualized basis, not $2.2563 trillion. As a result, the sequential increase on an annualized basis was 1.04 [ercent, not 1.19 percent.

>The new real total export total nonetheless remained the category’s fifth straight quarterly record.

>Real goods exports are now judged to have been $1.5696 trillion in the first quarter on a annualized basis, not $1.5722 trillion. As a result, the annualized sequential increase was 1.32 percent, not 1.49 percent.

>But this too was a fifth straight quarterly record.

>Real services exports are now judged to have been $687.4 billion annualized in the first quarter, not the $688.3 billion previously reported. As a result, the annualized sequential increase was 0.47 percent, not 0.60 percent. The new total, however, was a new record as well.

>The first quarter’s total real import figure has now been revised up from $2.9022 trillion on an annualized basis to $2.9038 trillion. As a result, the sequential increase is now 0.70 percent, not 0.64 percent. The new total is still a second straight quarterly record.

>The goods imports total is now estimated at $2.3993 trillion annualized, up from $2.3985 trillion. annualized represented this category’s second straight all-time quarterly high. As a result, the sequential growth is 0.56 percent, not the 0.52 percent previously reported, but the level is still a second straight quarterly record, too.

>Real services imports for the first quarter are now estimated at $502.9 billion annualized, not the $502.1 billion previously reported. As a result, their sequential growth is now 1.35 percent, not the 1.19 percent previously reported. But this new total is a record, too.

>At the same time, both the total imports and the goods imports growth rates still represent the biggest sequential slowdowns in years.

>Even the slightly higher inflation-adjusted total import growth reported for the first quarter (0.70 percent) was 79.17 percent lower than the fourth quarter’s 3.36 percent. That’s still the biggest such change since the first quarter of 2011 (81.87 percent).

>The slightly higher inflation-adjusted goods import growth reported for the first quarter (0.56 percent) was 86.21 percent lower than the fourth quarter’s 4.06 percent. That’s still the biggest such change since the first quarter of 2009 (87.63 percent) – near the low point of the Great Recession.

>With the modest increase between the initially reported first quarter annualized real trade deficit and today’s figure, trade’s drag on the current economic recovery became even larger.

>As of the latest data, the increase in the after-inflation trade deficit has reduced total real growth since the recovery’s onset in mid-2009 by 9.41 percent, or $284.6 billion. The initial first quarter read produced a figure of 9.23 percent, or $279.6 billion.

>Yet this growth drag is still a bit less than the fourth quarter’s 9.82 percent (or 287.6 billion.

>The growth drag of the increase in the Made in Washington trade deficit – which focuses on the non-oil goods trade flows most heavily influenced by trade agreements and other trade policies – has been much greater during the recovery.

>As of the first quarter, this Made in Washington recovery drag stood at 18.26 percent of cumulative real recovery growth ($535.09 billion). That’s a small improvement over its drag as of the fourth quarter of last year – 18.38 percent of cumulative recovery growth, or $538.81 billion.

(What’s Left of) Our Economy: As Beijing Talks Begin, Lower March U.S. China Trade Deficit Reported – But the Drop Looks Seasonal

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Canada, Census Bureau, China, EU, European Union, exports, high tech goods trade, imports, Made in Washington trade deficit, manufacturing trade deficit, Mexico, NAFTA, North American Free Trade Agreement, recovery, South Korea, Trade, trade deficit, {What's Left of) Our Economy

The onset of top-level U.S.-China trade talks in Beijing roughly coincided with the release of the March monthly U.S. trade figures, which showed that the monthly American merchandise deficit fell to its lowest level ($25.88 billion) since the previous April ($27.63 billion). Nonetheless, this new figure was the second biggest such total for March on record, behind 2015’s $31.24 billion. In addition, the U.S. goods deficit with China is still running 15.52 percent ahead of 2017’s record yearly rate.

Partly as a result of the China improvement, the combined U.S. goods and services trade shortfall in March plunged to its lowest monthly level ($49.86 billion) since last September’s $45.30 billion. And the sequential decline of 15.22 percent was the biggest since the 17.47 percent plunge in March, 2016. March’s totals for combined U.S. exports, goods exports, and high tech goods exports were all monthly records ($208.53 billion, $140.88 billion, and $34.85 billion, respectively). The all-time high in total exports was the third monthly record in the last four months. And the sequential high tech goods gain was a new all-time best (33.95 percent) even for this volatile category.

America’s merchandise trade with Canada racked up its largest monthly surplus on record ($306.1 million), but the U.S. goods deficit with its other NAFTA trade partner, Mexico, jumped to its biggest monthly total ever ($8.05 billion). Amid trans-Atlantic wrangling over American metals tariffs, new monthly records were also set for U.S. goods exports to and imports from the European Union ($29.85 billion and $41.99 billion, respectively), while the March U.S. goods export figure for South Korea was also the best on record ($5.09 billion).

America’s huge and chronic manufacturing trade deficit rose from $73.21 billion in February to $74.53 billion in March, and stayed on course to exceed $1 trillion this year. The March figure also showed that the drag on the current economic recovery from the growth of the Made in Washington trade deficit – that portion of U.S. trade flows most heavily influenced by trade deals and other trade policy decisions – dipped from 18.37 percent in real terms in the fourth quarter of last year (or $538.38 billion in constant dollars) to 17.66 percent ($535.09 billion in constant dollars) in the first quarter of this year.

Here are selected highlights of the latest monthly (March) trade balance figures released this morning by the Census Bureau:

>As a top-level Trump administration delegation arrived in Beijing for possibly contentious trade talks with China, the Census Bureau reported that the massive American goods deficit with the PRC – whose reduction is a leading on the U.S. goal – fell in March by 11.57 percent to its lowest level ($25.87 billion) since the previous April ($27.63 billion).

>At the same time, because U.S.-China goods trade is strongly influenced by seasonal factors, it was also noteworthy that this new March total was the second highest of all time – behind only 2015’s $31.24 billion.

>In addition, even this latest improvement left the bilateral merchandise shortfall running 15.52 percent ahead of last year’s rate, which produced an annual record of $375.23 billion.

>American goods exports to China jumped by 26.27 percent sequentially in March – the biggest such increase since the 32.70 percent advance in October, 2016 – to reach $12.38 billion.

>U.S. goods imports from China fell sequentially in March for the second straight month, to $38.26 billion. That total was the lowest monthly figure since last May’s $41.80 billion.

>The monthly improvement in goods trade with China helped push the combined U.S. goods and services trade deficit down 15.22 percent sequentially, from an upwardly adjusted $57.74 billion in February to $48.96 billion. The February figure was the highest since October, 2008.

>The monthly drop, moreover, was the biggest since March, 2016’s 17.47 percent.

>U.S. total exports hit a new record in March, with the $208.53 billion figure standing 2.04 percent higher than February’s downwardly revised figure of $204.35 billion. In addition, this was the third all-time monthly total export high achieved in the last four months.

>America’s merchandise exports reached an all-time high in March as well, rising 2.37 percent from February’s downwardly revised $137.13 billion to $140.88 billion.

>Another monthly trade best: high tech goods exports. At $34.85 billion, they were 33.95 percent higher than February’s $26.02 billion. High tech goods trade numbers tend to be volatile, but this advance was the greatest on record.

>Largely as a result, the high tech goods trade deficit sank 23.04 percent on month, from $7.93 billion to $6.11 billion – the second straight post-May, 2017 low.

>High tech imports soared on month in March, too – by 20.64 percent, to $40.96 billion. That was the biggest such increase since last March’s 24.58 percent. And the total was the biggest ever for a March.

>The high tech goods deficit is running fully 33.89 percent ahead of last year’s rate – which resulted in the biggest such shortfall on record.

>U.S. merchandise trade with Canada reached its own milestone in March – the biggest monthly American surplus of all time ($306.1 million). In February, the United States ran a deficit of $404.2 million.

>American goods exports to Canada surged by 15.26 percent on month in March, to $27.10 billion. That was the highest monthly total since October, 2014’s $28.39 billion.

>U.S. goods imports from Canada rose robustly, too – by 12.04 percent, to $26.80 billion. That was their highest monthly total since June, 2015’s $27.34 billion.

>The U.S. merchandise deficit with Canada is running 44.72 percent behind last year’s rate.

>The March trade picture for America’s other NAFTA partner, Mexico, was strikingly different. The U.S. goods deficit of $8.05 billion set a new monthly record.

>U.S. merchandise exports to Mexico rose by 8.31 percent on month, to $21.91 billion (the third highest total on record). But merchandise imports climbed by 13.96 percent, to a new record $29.96 billion.

>The merchandise deficit with Mexico is running 9.01 percent ahead of last year’s pace, which at $71.06 billion was the second highest annual total ever (after 2007’s $74.80 billion).

>Amid continued feuding between the United States and the European Union (EU), America’s merchandise trade deficit with the grouping inched up by 0.82 percent on month in March, from $12.05 billion to $12.15 billion.

>Though this total was far from an all-time high, both U.S. goods exports to and imports from the EU set new monthly records in March – $29.85 billion and $41.99 billion, respectively.

>The 19.51 percent percent monthly export increase was the biggest since March, 2011’s 22.51 percent.

>America’s goods deficit with the EU is running 17.71 percent ahead of last year’s rate, which resulted in the second highest annual figure ever ($151.42 billion, with the record being 2015’s $155.66 billion).

>The U.S. merchandise trade deficit with South Korea soared by 58.61 percent on month in March, to $1.08 billion. But this total was at the low end of the recent range. Moreover, in February, the goods shortfall cratered by 65.28 percent.

>The immense and longstanding American manufacturing trade deficit 73.21 to 74.53

>More notably, American goods exports to South Korea climbed to $5.09 billion – a new all-time high. Further, the 18.53 percent sequential advance was the fastest monthly rate of increase since the previous March’s 22.04 percent.

>U.S. merchandise imports from South Korea rose even faster on month in March – by 23.96 percent, to $6.17 billion. That increase, however, followed a 12.05 percent monthly decrease, repeating a roller-coaster pattern that has been typical for the first quarter of the year.

>Nonetheless, the year-on-year shrinkage of the U.S. merchandise trade gap with South Korea has been impressive – 64.30 percent.

>Volatility has also marked the immense and longstanding U.S. manufacturing trade deficit. After sinking dramatically in February from January’s $86.62 billion (the second highest monthly total on record, following last October’s $88.98 billion), the shortfall rebounded by 1.80 percent – from $73.21 billion to $74.53 billion.

>Manufactures exports increased robustly on month, by 18.56 percent, to $10.5.35 billion. But the far greater amount of manufactures imports rose by 10.99 percent, to $179.88 billion.

>This manufacturing trade gap is now running 13.87 percent ahead of last year’s pace – which produced a record total $927.48 billion annual total.

>As a result, if current trends continue, the manufacturing trade shortfall will top $1 trillion this year.

>The March trade figures permit calculation of the drag exerted as of the first quarter of 2018 on the current American economic recovery of the growth of the Made in Washington trade deficit. This consists of the trade flows, adjusted for inflation, that are most heavily influenced by U.S. trade agreements and similar trade policy decisions – i.e., the nation’s non-oil goods trade.

>As of the fourth quarter of last year, this trade drag had reduced cumulative recovery growth by 18.37 percent, or $538.38 billion in constant dollars.

>In the first quarter of this year, the drag was lower – 17.66 percent, or $535.09 billion in constant dollars.