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.