(What’s Left of) Our Economy: Worsening U.S. Trade Deficits are Back for Now

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Advanced Technology Products, CCP Virus, China, coronavirus, COVID 19, dollar, euro, Europe, exchange rates, exports, goods trade, imports, manufacturing, natural gas, non-oil goods, services trade, Trade, trade deficit, Wuhan virus, Zero Covid, {What's Left of) Our Economy

At least if you don’t factor in inflation, this morning’s official U.S. figures (for October) show that an encouraging recent winning streak for America’s trade flows and their impact on the economy has come to an end for now.

The winning streak consisted of overall monthly trade deficits that shrank sequentially from April through August, which means – according to how Washington and most economists calculate such things – that trade was contributing to the economy’s growth. And that five month stretch was the longest since the shortfall declined for six straight months between June and November, 2019.

Even better, this contribution translated into expansion that was healthier, fueled more by producing and less by borrowing and consuming. Better still, during the last part of this period, the deficit was falling while growth was taking place – as opposed to the more common pattern of a declining deficit limiting contraction mainly because a shriveling economy was buying fewer imports. And better still, for most of these months, the trade gap shrank both because exports climbed and imports dropped.

In October, however, the combined goods and services deficit rose for the second consecutive month, and by 5.44 percent, from an upwardly revised $74.13 billion to $78.16 billion. That total, moreover, was the highest since June’s $80.72 billion. And also for the second straight month – exports dipped and imports advanced.

That consecutive sequential export decrease was the first such stretch since the peak CCP Virus period of March thru May, 2020. The actual decline was 0.73 percent, from an upwardly revised $258.51 billion to $256.63 billion – a total that was the lowest since May’s $256.08 billion

The total import increase was also the second straight, and marked the first back-to-back improvements since January through March of this year (which capped an eight-month period of increases). These foreign purchases advanced by 0.65 percent in October, from an upwardly revised $332.64 billion to $334.79 billion.

Up for the second straight month as well as the goods trade deficit – a development that last happened from November, 2021 through January, 2022. The gap widened by 6.51 percent, from upwardly revised $93.50 billion to $99.59 billion, and this figure was the highest figure since May’s $104.33 billion.

Goods exports fell for the second straight month in October, too – a first since that peak virus period of March through May, 2020. (The streak actually began in February.) The October retreat was 2.06 percent, and brought the total from a downwardly revised $179.69 billion to $175.98 billion – its worst since April’s $176.80 billion

Goods imports grew a second straight month, too, from an upwardly revised $273.19 billion to $275.57 billion. The 0.87 percent increase resulted in the highest monthly level since June’s $282.68 billion.

Services trade, which is dwarfed by goods trade, nonetheless produced some bright spots in the October trade report. The longstanding surplus in this sector, which was so hard hit by the pandemic, improved for the first time in three months, froma downwardly revised $19.37 billion to $21.43. The 10.62 percent increase produced the best monthly total since last December’s $21.66 billion.

Most of this progress stemmed from the ninth consecutive advance and the seventh straight record in services exports. In October, they expanded from an upwardly revised $78.82 billion to $80.65 billlion.

Services imports dipped by 0.38 percent, from an upwardly revised record of $59.45 billion to $59.22 billion.

Manufacturing’s chronic and enormous trade shortfall became more enormous in October, worsening by 4.32 percent, from $129.14 billion to $134.73 billion. That total was the second highest ever, after March’s $142.22 billion.

Manufacturing exports inched down by 0.24 percent, from $110.69 billion to $110.42 billion, while imports surged by 2.07 percent, from $240.10 billion to a second-highest ever $245.17 billion (behind only March’s $256.18 billion).

At $1.2745 trillion (up 18.06 percent from the 2021 level), the year-to-date manufacturing trade deficit is already close to the annual record – last year’s $1.3298 trillion.

By contrast, dictator Xi Jinping’s over-the-top Zero Covid policies no doubt helped depress the also chronic and enormous U.S. goods trade deficit with China by 22.58 percent on month in October. The nosedive was the biggest since the 38.93 percent plummet in February, 2020, when the People’s Republic was locking itself down against the first CCP Virus wave. And the October monthly trade gap was the smallest since August, 2021’s 31.66 percent.

Interestingly, U.S. goods exports to China soared by 31.38 percent on month in October, from $11.95 billion to $15.70 billion. That amount was the highest since last November’s $15.87 billion, and the monthly increase of 31.33 percent was the fastest since October, 2021’s 51.23 percent.

Imports, however, sank by 9.49 percent, from $49.25 billion to $44.57 billion. The level was the lowest since May’s $43.86 billion and the rate of decrease the greatest since April’s 11.82 percent.

Year-to-date, the China goods trade gap has ballooned by 18.68 percent, once again faster than the rise of the U.S. non-oil goods deficit (17.53 percent), its closest global proxy.

In October, for a change, the widening of the overall U.S. trade deficit – and then some – came largely from a booming imbalance with Europe. The goods gap with the continent skyrocketed by 48.51 percent, sequentially, from $15.78 billion to $23.44 billion. That new total was the biggest since March’s $28.50 billion and the rate of increase the fastest since it shot up by 68.37 percent that same month.

U.S. goods exports to Europe actually set a new record in October ($44.27 billion, versus the old mark of $43.61 billion in June). But American global sales of natural gas, which are up 52.51 percent on a year-to-date basis due largely to the continent’s need to replace sanctioned Russian energy supplies, oddly pulled back by 9.90 percent.

At the same time, American goods imports from Europe, surely reflecting a weak euro, leaped by 16.35 percent, from $58.19 billion to $67.71 billion. That total was the second highest on record (trailing only March’s $70 billion) and the monthly increase (16.35 percent) the fastest since March’s 32.43 percent.

October trade in Advanced Technology Products (ATP) set several records, but most were the bad kind. The deficit worsened by 7.70 percent, from $24.32 billion to $26.19 billion, and hit its second straight all-time in the process.

Exports set a new record, rising 4.08 percent on month, from $34.33 billion to $35.73 billion. (The old mark of $34.91 billion dates back to March, 2018.)

Imports also reached their second straight all-time high, climbing 5.58 percent sequentially, frm $58.65 billion to $61.92 billion.

Moreover, year-to-date, the ATP trade shortfall is up 32.17 percent, and at $204.21 billion, it’s already set a new annual record.

Some relief could be in store for America’s trade flows in the coming months. The dollar has weakened in recent weeks, which will restore some price competitiveness for U.S.-origin goods and services at home and abroad. And a recession, a further growth slowdown, and/or continued high inflation could keep reducing imports as well (though that’s the kind of recipe for smaller trade deficits that no one should welcome).

At the same time, solid economic growth could continue, as it has throughout the second half of the year. Americans’ spending power could remain strong, given still huge (though dwindling) amounts of savings amassed during the pandemic. At the behest of U.S. allies, President Biden seems likely to weaken the Buy American provisions governing the green energy production incentives in the Inflation Reduction Act. And China’s export machine could revive as Beijing decides to back away from economically crippling levels of lockdowns.

At this point, however, I’m thinking that recent deficit improvement will keep “rolling over” as Wall Streeters call a steady reversal of investment gains. It’s not much more than a gut feeling. But my hunches aren’t always wrong.

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(What’s Left of) Our Economy: An End to a U.S. Trade Winning Streak?

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Advanced Technology Products, China, consumption-led growth, dollar, economic growth, exchange rate, exports, Federal Reserve, goods trade, imports, inflation, interest rates, Jerome Powell, manufacturing, monetary policy, non-oil goods, services trade, Trade, trade deficit, yuan, zero covid policy, {What's Left of) Our Economy

Today’s official U.S. monthly trade data (for September) signal an end to an encouraging stretch during which the national economy both exported more and imported less – and engineered some growth at the same time. (See, e.g., here and here.)

That’s been encouraging because it means expansion that’s powered more by production than by consumption – a recipe for much more solid, sustainable growth and prosperity than the reverse.

But the new trade figures show not only that the total trade gap widened for the first time since March (to $73.28 billion), and reached its highest level since June’s $80.88 billion. They also revealed that the deficit increased because of lower exports and higher imports for the first time since January.

The discouraging September pattern also indicates that American trade flows are finally starting to feel the effect of the surging U.S. dollar, which hurts the price competitiveness of all domestic goods and services in markets at home and abroad.

Some (smallish) silver linings in the new trade statistics? A bunch of (biggish) revisions showing that the August improvement in America’s was considerably better than first reported.

At the same time, two new U.S. trade records of the bad kind were set – all-time highs in services imports and in imports of and the deficit for Advanced Technology Products (ATP). But services exports reached an all-time high as well.

The impact of the revisions can be seen right away in that combined goods and services trade deficit figure. The September total was 11.58 percent higher than its August counterpart. And it did break the longest stretch of monthly drop-offs since the May-November, 2019 period. But that new August figure is now reported at $65.28 billion, not $67.40 billion. That’s fully 2.55 percent lower.

The August total exports figures saw a noteworthy upward revision, too – by 0.72 percent, from $258.92 billion to $260.79 billion. In September, however, these overseas sales decreased for the first time since January, with the 1.07 percent slippage bringing them down to $258.00 billion. That’s the lowest level since May’s $254.53 billion..

As for overall imports, they were up in September for the first time since May. The increase from $326.47 billion to $331.29 billion amounted to 1.47 percent.

As with the total trade deficit, the August figure for the goods trade gap was revised down by a sharp 1.67 percent, from $87.64 billion to $86.17 billion. And also as with the total trade shortfall, its goods component in September rose for the first time since March. The 7.63 percent worsening, to $92.75 billion, brought the gap to its highest since June’s $99.26 billion.

Goods exports for August were upgraded significantly, too – by 0.75 percent, from $182.50 billion to $183.86 billion. But in September, they shrank on month by 2.01 percent, with the $180.17 billion level the lowest since May’s $179.76 billion.

Goods imports for their part climbed for the first time since May. Their 1.09 percent increase pushed these purchases up from $270.04 billion in August to $272.92 billion in September.

The revisions worked the opposite way for the longstanding service trade surplus. August’s total is now judged to be $20.49 billion – 1.24 percent higher than the originally reported $20.24 billion. And in September it sank for the second straight month, with the 5.01 percent decrease representing the biggest monthly drop since May’s 9.69 percent, and the resulting in a $19.47 billion number the weakest since June’s $18.38 billion.

Services exports for August were upgraded by 0.67 percent, from $76.42 billion to $76.93 billion. They climbed increased further in September – by 1.18 percent to a fourth straight record of $77.83 billion.

The August services import totals were also revised up, with the new $56.44 billion level 0.46 percent higher than the original $56.18 billion. Their ascent continued in September, with the 3.42 percent surge – to a record $58.37 billion – standing as the biggest monthly increase since February’s 5.13 percent.

Domestic manufacturing had a mildly encouraging September, with its yawning, chronic trade gap narrowing by 1.74 percent, from $131.71 billion to $129.41 billion.

Manufacturing exports slumped from $113.34 billion in August (the second best ever after June’s $114.78 billion) to $110.688, for a 2.34 percent retreat.

Manufacturing imports tumbled by 2.02 percent, from August’s $245.05 billion (the second highest all-time amount behind March’s $256.18 billion) to $240.10 billion.

Due to these figures, manufacturing’s year-to-date trade deficit is running 18.17 percent ahead of 2021’s record level (which ultimately came in at $1.32977 trillion). In fact, at its current $1.13974 trillion, it’s already the second highest yearly manufacturing deficit in U.S. history.

Since manufacturing trade dominates America’s goods trade with China, it wasn’t surprising to see the also gigantic and longstanding merchandise trade deficit with the People’s Republic declining in September for the first time in five months.

The small 0.39 percent monthly decrease, from $37.44 billion in August (this year’s top total so far) to $37.29 billion no doubt reflected the effects of Beijing’s continuing and economically damaging Zero Covid lockdowns.

Indeed, however modest, this decrease is noteworthy given that China allowed its currency, the yuan, to depreciate by 11.29 percent versus the dollar this year through September.

U.S. goods exports to the People’s Republic were down in September for the first time since June, with the 7.39 percent fall-off pulling the total from $12.91 billion (a 2022 high so far) to $11.95 billion. The monthly decrease was the biggest since April’s Zero Covid-related 16.25 percent, and the level the lowest since June’s $11.68 billion.

America’s goods imports from China were off on month in September as well – and also for the first time in June. The contraction from August’s $50.35 billion (the second highest all-time total) to September’s $49.25 billion was 2.24 percent.

On a year-to-date basis, the China deficit has now risen by 21.98 percent. That’s important because it continues the trend this year of growing faster than its closest global proxy, the non-oil goods trade deficit (which has widened during this period by just 17.21 percent).

Moreover, this gap has widened overwhelmingly because of China’s feeble importing. Year-to-date, the People’s Republic’s goods purchases from the United States are up just 3.05 percent. The non-oil goods counterpart figure is 15.88 percent.

Finally, the U.S. trade deficit in Advanced Technology Products (the U.S. government’s official name for these goods, hence the capitalization) surged by 18.79 percent sequentially in September, from $20.47 billion to a new monthly record of $24.32 billion. That level topped March’s previous high of $23.31 billion by 4.35 percent.

ATP exports rose a nice 5.39 percent on month in September, from $32.60 billion to $34.33 billion. But imports popped by 10.50 percent, from August’s $53.08 billion to a record $58.65 billion – which surpassed the old record (also set in March) of $56.71 billion by 3.41 percent.

Moreover, year-to-date the ATP deficit is up 29.65 percent, from $137.31 billion to !$178.01 billion. That’s already equal to the third highest total annual total ever, behind last year’s $195.45 billion and 2020’s $188.13 billion. So look for another yearly worst t be hit in these trade flows.

At this point, the trade deficit’s future is especially hard to predict. On the one hand, if the chances of a U.S. recession before too long seem to have increased due to the Federal Reserve Chair Jerome Powell’s hawkish remarks yesterday on inflation and interest rates. Normally, that would force the deficit down as tighter monetary policy depressed consumption – and imports.

On the other hand, higher interest rates could well keep strengthening the dollar and keep the deficit on the upswing. So could the still enormous levels of savings (and spending power) that Americans have amassed since the CCP Virus pandemic struck.

The only thing that seems certain, unfortunately, is that the sweet spot that American trade flows have found themselves in recently looks like it’s gone for the time being.

(What’s Left of) Our Economy: Faint Recession Signs Visible in the Latest U.S. Trade Figures

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CCP Virus, China, coronavirus, COVID 19, dollar, Donald Trump, energy, exchange rates, exports, goods trade, imports, manufacturing, non-oil goods, recession, services trade, tariffs, Trade, trade deficit, {What's Left of) Our Economy

If you’re in the market for (still more) signs of how weird the American economy remains as it emerges from the CCP Virus pandemic, last week’s latest official U.S. trade figures (for August) are just the ticket.

Among other results, they showed astronomical monthly deficits for the nation’s manufacturing-heavy China trade, and for industry as a whole – along with passage of industry’s cumulative trade gap this year beyond the trillion-dollar mark, and toward a fifth straight year of annual shortfalls exceeding this level.

But as reported in the latest official figures, domestic manufacturing keeps boosting output and hiring new workers so far anyway – due mainly to the enormous new demand for manufactured goods from everywhere created by the unprecedented stimulus still coursing through the economy.

Less encouragingly, even though the overall trade deficit fell again sequentially, total exports retreated for the first time in seven months. Combined goods and services imports fell, too – with these two developments suggesting that the gap is now beginning to narrow not because U.S. growth is becoming healthier (which would be the case if exports were expanding and imports decreasing), but because the economy is weakening – and maybe heading into a recession.

More specifically, the total trade deficit sank by 4.34 percent on month in August, from $70.46 billion to $67.40 billion. The sequential decrease was the fifth in a row (the longest such stretch since May-November, 2019) and the level the lowest since May, 2021’s $66.33 billion.

The aforementioned combined goods and services exports decrease was modest – just 0.26 percent. And the monthly total – $258.92 billion – was still the second highest on record. It was all the more noteworthy given the continuing rapid rise in the value of the U.S. dollar, which undercuts the price competitiveness of American-origin products and services the world over.

Overall imports were down for the third straight month – the longest such streak since the five-month stretch from December, 2019 to May, 2020, during the pandemic’s first wave – and decreased by 1.04 percent. So we’re hardly talking about a collapse.

The trade deficit in goods – which make up the vast majority of U.S. exports and imports – also shrank for the fifth straight month in August, and this streak also was the longest since May-November, 2019. Having fallen by 3.74 percent from $91.07 billion to $87.64 billion, this shortfall is now the smallest since October, 2021’s $86.23 billion.

Goods exports were off for the second straight month, slumping 0.36 percent, from a record $183.26 billion to $182.50 billion. But the total was still the third highest ever.

Goods imports decreased for the third straight month (the longest such stretch since pandemic-y December, 2019 to May, 2020, too), and fell by 1.49 percent, from $274.23 billion to $270.14 billion.

The nation’s long-time services trade surplus, however, narrowed in August for the first time in three months – by 1.82 percent, from $20.62 billion to $20.24 billion.

Services exports were fractionally lower, but the $76.42 billion total remained an all-time high for all intents and purposes.

Services imports climbed by 0.66 percent, from $55.81 billion to $56.18 billion – the third highest monthly level on record (after June’s $57.09 billion and May’s $56.41 billion).

It’s easy to conclude that the August drop in the overall trade deficit was entirely an energy story. And indeed, while the combined goods and services shortfall stood at $3.06 billion, the monthly improvement in the petroleum balance ($2.27 billion) and in the natural gas surplus ($1.09 billion), was slightly greater.

But significant movement came in other sectors of the economy as well. As indicated above, the chronic and huge deficit in manufacturing became huge-er, jumping 7.87 percent, from $122.09 billion to $131.71 billion – the third highest monthly total ever (after March’s $142.22 billion and May’s $132.60 billion).

Strikingly defying that high dollar, manufacturing exports improved by 3.50 percent, from $109.50 billion to $113.34 billion – the second best total ever after June’s $114.78

But the much greater volume of manufacturing imports also hit their second highest level on record (behind March’s $256.18 billion) after increasing from $231.59 billion to $245.05 billion.

The August data brought this year’s manufacturing deficit to $1.01033 trillion, and it’s running 19.37 percent ahead of last year’s annual record pace.

Since China accounts for so much of U.S. manufacturing trade, it’s no surprise that in August, the American goods deficit with the People’s Republic surged by 8.85 percent, from $34.40 billion to $37.44 billion.

U.S. goods exports to China expanded on month by 5.22 percent – from $12.27 billion to $12.91 billion. But goods imports from China are about four times greater, and they rose faster – by 7.90 percent, from $46.66 billion to $50.35 billion. That was the second highest total ever, after October, 2018’s $52.08 billion, when Chinese exporters and U.S. importers were scrambling to conclude transactions before former President Donald Trump’s tariffs came into force.

On a year-to-date basis, the China goods deficit is now up 25.23 percent – considerably faster than its closest global proxy, the non-oil goods deficit (19.33 percent). That could indicate that whatever the impact of the Trump tariffs, it’s faded.

But the story becomes much more complicated after examining the separate export and import flows. Year-to-date, goods imports from China have risen faster (18.31 percent) than their global non-oil goods counterparts (16.94 percent). But the difference isn’t all that big, especially considering China’s still formidable worldwide competitiveness edge in so many industries.

What is all that big is the difference on the China import side. U.S. foreign sales of non-oil goods have increased by 15.31 percent so far ths year. But goods exports to China edged up by just 2.43 percent. Since China’s economy this year is widely expected to grow about as fast as the global economy, clearly something wrong and indeed quite protectionist is going on. Time for some new U.S. tariffs in response, I’d say.

(What’s Left of) Our Economy: Why Cutting China Tariffs to Fight U.S. Inflation Looks More Bogus Than Ever

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Biden, China, consumer price index, CPI, currency, currency manipulation, Donald Trump, import prices, inflation, non-oil goods, Section 301, tariffs, yuan, {What's Left of) Our Economy

As RealityChek readers may have noted, I haven’t followed the U.S. government data on import prices for a while. That’s been because global trade has been so upended for the last two-plus years by the CCP Virus pandemic and the supply chain turmoil it’s fostered. Three big recent developments warrant returning to import price numbers, though.

First, President Biden has confirmed that he and his administration is seriously considering lowering tariffs on imports from China in order to help fight inflation. Second, since early March, China has dramatically driven down the value of its currency, the yuan. Since the yuan’s value is controlled by the Chinese government, rather than trading freely, Beijing has been giving its exports price advantages over all the competition (and in the U.S. and other foreign markets as well as in its own) for reasons having nothing to do with free trade or free markets. Third, new import price statistics just came out this morning.

And developments number two and three make clearer than ever that blaming the China tariffs for any of the torrid price increases afflicting American consumers or businesses is the worst kind of fakeonomics.

In a previous post, I explained why the scant actual tariffs imposed by former President Donald Trump on Chinese-made consumer goods and remaining on them, and the negligible portion of the Consumer Price Index (CPI) they represented, couldn’t possibly move the inflation needle notably.

Further, there’s the timing issue: The Trump tariffs imposed under Section 301 of U.S. trade law were slapped on in stages between March, 2018 and August, 2019. And by their nature, each of them could only generate a one-time price change. Yet consumer inflation in America didn’t take off until early 2021. Obviously, something(s) else was (were) responsible.

China’s currency moves, moreover, show that any Biden tariff-cutting will only add more artificial price edges to those Beijing is already creating for itself – thereby recreating some of the predatory Chinese pressure that competing U.S. employers and workers had long endured before the relief granted by Trump’s tariffs.

Since early March, the yuan has weakened by fully 7.75 percent versus the dollar. And with China’s leaders facing a substantial economic slowdown that could challenge the Communist Party’s political legitimacy, don’t expect Beijing to abandon quickly any practice that could prop up growth and employment.

Those new U.S. import price data reveal that the yuan’s depreciation hasn’t much affected China’s (government-made) competitiveness yet. But as indicated by the chart below, it soon will. As you can see, for years, the prices of Chinese imports entering the American market and the yuan’s value have risen and fallen pretty much in tandem.  

In addition, according to the new import price statistics, over the past year (April to April), import prices from China have risen much more slowly (4.6 percent) than the prices of the closest global proxy, total American non-fuel imports (7.2 percent). And the Trump tariffs should be singled out as a meaningful inflation engine?

Of course, these price trends could be cited to argue that these tariffs had no notable impact on U.S. competitiveness at all. But U.S. Census data show that, between the first quarter of 2018 (when the first Section 301 Trump tariffs were imposed), and the first quarter of this year, goods imports from China fell from 2.44 percent of the U.S. economy to 2.26 percent. (And this despite a big surge in American purchases of CCP Virus-fighting goods from the People’s Republic due to Washington’s long-time neglect of the nation’s health security and the secure supply chains it requires.) During this same period, total non-oil goods imports (the closest global proxy) increased as a share of the economy from 11.35 percent to 12.41 percent. So the Trump policies must have had some not-negligible effect.

The case for reducing the China tariffs is feeble enough even without these inflation points. After all, the Chinese economy is running into significant trouble due to its over-the-top Zero Covid policy, the deflation of its immense property bubble, and dictator Xi Jinping’s crackdown on the country’s tech sector. So the last thing on Washington’s mind should be throwing Beijing a tariff lifeline. Boosting China’s export revenue also means boosting the amount of resources available to the armed forces of this aggressive, hostile great power. And none of the tariff-cutting proposals is conditioned on any reciprocal concessions from China.

Citing bogus inflation arguments is the icing on this rancid cake, meaning the tariff-cutting proposal can’t be dropped fast enough.