(What’s Left of) Our Economy: A Decent Month & a Long Way to Go for US Trade

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Canada, Census Bureau, China, exports, Germany, imports, Made in Washington trade deficit, Mexico, NAFTA, North American Free Trade Agreement, recovery, South Korea, Trade, trade deficit, Trump, {What's Left of) Our Economy

America’s goods and services trade deficit decreased by 5.93 percent in June – a second straight sequential decline that resulted in its lowest level ($43.64 billion) since last October. Highlighting the month’s results was an all-time high services exports figure ($65.37 billion). In addition, total exports hit their highest level ($194.37 billion) since the end of 2014, and June goods exports to Mexico ($21.35 billion) were the second greatest total on record, and the merchandise deficit fell on month at its fastest pace (18.28 percent) since July, 2015.

Yet despite these milestones, the total trade deficit for the first half of the year ($276.60 billion) was the highest six-month total since the first six months of 2012. Further, goods exports to China – which accounts for roughly half of the total American merchandise trade deficit – fell in June at their fastest rate (4.74 percent) since January, 2016 (18.41 percent). And although the China-heavy manufacturing and high tech trade deficits fell on month, they are running ahead of last year’s totals as well. Indeed, the latter’s six-month total ($43.40 billion) represents an all-time high. Year-to-date merchandise shortfalls have risen – including a quadrupling of the Canada shortfall – with many of the foreign economies whose trade policies have been criticized by President Trump. (Germany and South Korea were important exceptions).

The June figures also showed a quarterly uptick in the drag on the current recovery of the Made in Washington portion of the U.S. trade deficit from an already lofty level – cutting 17.47 percent from cumulative growth since the expansion began in mid-2009, or just under $464 billion.

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

>In June, the combined U.S. goods and services trade deficit dropped for its second straight month, from a downwardly revised $46.39 billion to $43.64 billion. The new total brought the shortfall to its lowest level since last October ($43.07 billion).

>Leading this progress were U.S. services exports, which rose on month by 0.94 percent to a a second straight new all-time high: $65.37 billion.

>Total exports hit something of a milestone, too, increasing by 1.23 percent sequentially to their highest level ($194.37 billion) since December, 2014 ($197.18 billion).

>Moreover, on the eve of the renegotiation of the North American Free Trade Agreement, the June data show that U.S. goods exports to NAFTA partner Mexico improved by 7.42 percent over May’s figure, to hit their second highest total ($21.35 billion) on record. (The all-time high of $22.35 billion was set in August, 2014).

>Yet in contrast to this good news, the combined American trade deficit for the first six months of the year ($276.60 billion) was the worst January-June total since 2012’s $281.46 billion – when economic growth was somewhat faster.

>Another June low-light: China, which may face punitive unilateral U.S. tariffs, bought 4.74 percent few goods from the United State than in May – the steepest such drop since January, 2016’s 18.41 percent.

>U.S. merchandise imports from China, however, rose by 1.17 percent, to $42.29 billion, and helped push the June American deficit up 3.08 percent, to $32.58 billion – the highest since last August’s $33.86 billion.

>Year-to-date, the U.S. goods deficit with China is running 6.08 percent ahead of last year’s pace, even though exports have risen nearly twice as fast (up 15.63 percent) than imports (8.39 percent).

>Although it fell on month in June (by 6.83 percent, to $8.82 billion), on a year-to-date basis, the trade deficit for high tech goods for the first half of this year set its own new record for the January-June period – $43.40 billion.

>In fact, this shortfall is up 33.37 percent from the previous January-June period.

>Between the first half of last year and the first half of this year, U.S. High tech exports inched up by only 0.36 percent, but imports have climbed 5.66 percent.

>A similar story unfolded in manufacturing. The trade gap fell 4.93 percent on a monthly basis, from $80.10 billion in May (the second highest total ever) to $76.13 billion.

>Manufacturing exports rose 2.98 percent on month, while imports dipped by 0.70 percent.

>Year-to-date, however, the manufacturing trade deficit is running 6.19 percent ahead of last year’s record pace, which resulted in an $853.07 billion 12-month total.

>Manufacturing exports are up 3.86 percent for the January-June period, but imports have grown by 4.98 percent.

>Mexico represents another example of a country criticized by President Trump whose merchandise trade surplus with the United States shrunk sequentially but has risen on a year-to-date basis.

>Thanks largely to those robust American goods export figures, the U.S. goods deficit with Mexico sank by fully 18.28 percent month-to-month – the fastest rate since July, 2015 (43.12 percent). American goods purchases from Mexico rose by only 0.52 percent over June’s levels.

>Year-to-date, however, the U.S. merchandise shortfall with Mexico is up by 13.26 percent, as goods exports have risen by 5.04 percent, but imports have grown by a faster 6.86 percent.

>An even more extreme example is provided by Canada, with which U.S. goods trade flows have been exceptionally volatile, albeit in the context of a balance that has become notably modest.

>In June, the American merchandise deficit with Canada nosedived by 54.42 percent. The decrease was only from $1.37 billion to $624 million in absolute terms, but that’s still the lowest Canadian goods surplus since June, 2016.

>On a monthly basis, U.S. goods exports to Canada improved by 1.11 percent, and imports fell by 1.77 percent.

>Between the first six months of this last year and this year, however, the U.S. goods deficit with Canada has more than quadrupled, from $2.20 billion to $10.51 billion. American merchandise exports have advanced by 3.94 percent, but imports rose by nearly twice as fast – 9.95 percent.

>Indeed, the American goods shortfall with its partners in NAFTA (the North American Free Trade Agreement), which will soon be renegotiated by the three signatories, dropped by 24 percent month-to-month in June, from $8.66 billion to $6.58 billion, on an export increase of 3.91 percent and an import dip of 0.61 percent.

>Year-to-date, however, this deficit has surged by 36.68 percent, from $34.24 billion to $46.79 billion, as U.S. goods sales to Mexico and Canada combined have improved by 4.44 percent, but purchases from the two grew by 8.36 percent.

>Yet U.S. goods trade with Germany has shown a reversal of this pattern. In June, the American merchandise deficit rose by 10.03 percent, from $4.99 billion to $5.49 billion. U.S. exports increased by a mere 0.18 percent, while imports were up by 5.36 percent.

>The American goods deficit with Germany on a year-to-date basis, however, has decreased by 5.48 percent, as U.S. merchandise sales to Germany have advanced by 7.04 percent, while purchases from Germany have slipped by 0.1 percent.

>U.S. goods trade with South Korea followed this pattern, but with bigger disparities between the on-month and on-year data. Sequentially in June, the American merchandise deficit jumped by 26.23 percent, from $1.46 billion to $1.85 billion. U.S. merchandise sales to South Korea were off 5.96 percent, but American goods imports increased by 1.95 percent.

>Yet between January-June, 2016 and January-June, 2017, this American merchandise deficit cratered by 31.91 percent, from $16.46 billion to $11.20 billion. U.S. goods exports to South Korea surged by 21.82 percent during this period, while imports slid by 2.38 percent.

>At the same time, on a monthly basis, the American merchandise trade deficit with South Korea has more than tripled (from $561.4 billion) since the bilateral trade agreement went into effect in March, 2012.

>The June trade figures make clear that the drag on American growth exerted by the Made in Washington portion of the U.S. trade deficit grew slightly between the first and second quarters of this year – from an already considerable level.

>This deficit consists of U.S. trade flows heavily influenced by trade agreements and other trade policy decisions – thus omitting services and oil trade – that are then adjusted for inflation.

>Between the second quarter of 2009 – when the current recovery officially began – and the first quarter of 2017, the increase in this Made in Washington deficit has cut cumulative U.S. growth by 17.40 percent, or $443.24 billion out of $2.5476 billion in real GDP expansion.

>As of the second quarter of 2017, this drag effect increased to 17.47 percent, or $463.97 billion out of $2.6551 billion in real GDP expansion.

(What’s Left of) Our Economy: Trump’s NAFTA Rewrite Blueprint is an Encouraging Start

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bubbles, Buy American, Canada, dispute resolution, environmental standards, GATT, General Agreement on Tariffs and Trade, government procurement, labor standards, manufacturing, Mexico, NAFTA, national treatment, non-discrimination, North American Free Trade Agreement, reciprocity, rules of origin, tariffs, TPP, Trade, trade deficit, trade enforcement, trade laws, Trans-Pacific Partnership, Trump, value-added taxes, VATs, World Trade Organization, WTO, {What's Left of) Our Economy

The Trump administration is out with its detailed statement of renegotiation objectives for the North American Free Trade Agreement (NAFTA), and if you’ve favored turning U.S. trade policy from an engine of debt-creation and offshoring into one of production-fueled growth and domestic job creation, you should be pretty pleased.

As critics have noted, yesterday’s statement does lack numerous important details about how the administration intends to achieve its goals, and some of these omissions (as will be explained) raise legitimate questions about the depth of the president’s commitment to these changes. But the statute requiring the release of such statements doesn’t mandate disclosure of every – or any – specific strategy for reaching these goals. Moreover, the talks haven’t even started, and these tactics naturally tend to change with circumstances. So those accusing the administration of excessive vagueness should start holding their fire.

As indicated in yesterday’s post, the most important change needed in NAFTA is the addition of teeth to the agreement’s existing rules of origin – the requirements that goods sold within the NAFTA free trade zone comprised of the United States, Mexico, and Canada be made overwhelmingly of parts, components, and materials made inside the zone.

After all, manufacturing dominates trade not only inside NAFTA, but between the NAFTA countries and the rest of the world. Without imposing teeth, non-NAFTA countries will have no meaningful incentive to invest in new NAFTA-area facilities to produce the intermediate goods that comprise the content of final products, like automobiles. And the economies, businesses, and workers in the three countries will be denied immense opportunities to boost production and employment. Indeed, this is precisely this opportunity that’s been missed under the current NAFTA.

It’s difficult to imagine these teeth taking a form other than steep tariffs on goods imports from outside NAFTA, and the Trump blueprint never mentions that “t” word. But it does contain a call to “Update and strengthen the rules of origin, as necessary, to ensure that the benefits of NAFTA go to products genuinely made in the United States and North America.” And it specifies that these improved origin rules must “incentivize the sourcing of goods and materials from the United States and North America.” How could anyone supporting more U.S. manufacturing production and employment not be heartened?

Also impressive – as widely reported, the administration has prioritized preserving America’s ability to “enforce rigorously its trade laws, including the antidumping, countervailing duty, and safeguard laws” chiefly by eliminating the NAFTA provisions that established international tribunals as the last word in resolving trade complaints among the signatories, rather than the U.S. trade law system. The Trump administration is also seeking to reestablish America’s unfettered authority to impose “safeguard” tariffs on imports from Mexico and Canada when they begin to surge into the United States. So if you’re worried that NAFTA and other recent U.S. trade agreements have needlessly undermined American sovereignty, this blueprint is for you.

Similarly, critics have long complained about NAFTA’s overriding of the Buy America provisions of U.S. public procurement regulations aimed at maximizing the American taxpayer dollars used to purchase goods and services for government agencies. The Trump strategy laid out in the blueprint seeks to preserve these and other key domestic preference programs.

It’s true, as is being contended, that in areas ranging from promoting high labor rights and environmental standards, to dealing more effectively with the trade distortions created by state-owned enterprises (SOEs), the Trump NAFTA blueprint looks a lot like the Trans-Pacific Partnership (TPP) trade deal that the president condemned as a candidate and withdrew from on his first day in office.

It’s just as true, however, that formidable obstacles were bound to prevent effective enforcement of those proposed TPP rules. These loom as large as ever – notably, the huge numbers of U.S. government officials that would be needed to monitor the even huge-er Mexican manufacturing sector on anything close to an ongoing basis. But the final TPP text demonstrated beyond reasonable doubt that the Obama administration failed to address these concerns adequately. Maybe the Trump administration will come up with viable answers.

Finally, the Trump NAFTA blueprint contains two conceptual objectives that have never been prioritized since the current world trading system was created shortly after World War II, and that trade policy critics should be applauding vigorously. The first is the endorsement of reciprocity as a lodestar of American trade strategy. The second is an emphasis on reducing America’s mammoth trade deficits.

Although reciprocity (i.e., America opens its markets to certain trade partners only to the extent that their markets are open to U.S.-origin goods and services) seems like an uncontroversial trade goal for Washington to seek, and is often presumed to be the goal, nothing until now could be further from the truth. In particular, the foundational principles of the world trade system under the General Agreement on Tariffs and Trade (GATT), and the World Trade Organization (WTO) are national treatment and non-discrimination.

National treatment simply insists that countries deal with foreign enterprises the same way they deal with their own domestic enterprises. Non-discrimination simply mandates that countries treat imports from all trade partners’ identically. The big problems? They enable closed economies to maintain way too many trade barriers. For instance, countries that favor certain companies over others for either political reasons (as with China’s state-owned sector) or reasons of national economic strategy (as with Japan’s efforts to limit entrants into certain industries to prevent excessive domestic competition) can continue discriminating in similar ways against foreign competitors. And countries can maintain high trade barriers as long as they apply equally to all imports.

As for trade deficit reduction, it’s a great way to promote healthy, production-led American growth, rather than the kind of debt-led, bubble-ized growth that’s been engineered arguably going back to the 1990s. But here’s where the Trump blueprint can be faulted. Especially if the new NAFTA contains better rules of origin, it’s likeliest to reduce the U.S. trade deficit with non-NAFTA countries, not with the treaty signatories that the blueprint targets. And nothing would be wrong with that result at all.

Two other aspects of the NAFTA objectives deserve comment – and merit genuine concern. First, although it’s good that the administration has included on the list currency manipulation, critics are right to note that specifics are urgently needed. Their development, moreover, is important not mainly because Canada and Mexico have been important culprits (they haven’t been) but because this is a challenge that President Trump needs to meet in connection with countries that clearly have manipulated in the past and could well do so again.

Second, the Trump blueprint makes no mention of value-added taxes (VATS). Mexico’s is 16 percent, Canada’s is five percent at the federal level and eight percent at the provincial level. As with all other VATs, these levies act as barriers to imports and subsidies for exports. Candidate Trump rightly called for American countermeasures in order to level the trade playing field inside NAFTA. President Trump should take heed.   

(What’s Left of) Our Economy: April’s U.S. Trade Figures Sure Weren’t Winners

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China, economic growth, exports, GDP, Germany, gross domestic product, high tech goods, imports, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, Trade, trade deficit, {What's Left of) Our Economy

Since last Friday was one of those days when both the U.S. jobs figures and trade figures were released the same morning, and since I was traveling that day, I didn’t get a chance to report on the latter as promptly as usual. But that doesn’t mean the trade figures should be overlooked! Here’s a quick rundown of the high- (or low-) lights, which cover the month of April:

>The combined goods and services U.S. trade deficit rose by 5.15 percent on month, from $45.28 billion to $47.62 billion. But for a change, the big news in this total trade shortfall category was in the revision for the March gap – it was upgraded from an initially reported $43.71 billion. That’s a ginormous 3.61 percent.

>Total exports fell sequentially in April by 0.25 percent, from $191.46 billion to $190.98 billion, and total imports increased from $236.74 billion to $238.59 billion, or 0.78 percent.

>And quite naturally, the March revisions were substantial, too. That month’s combined export total was upgraded by 0.25 percent, and the much larger combined import total revised up by 0.87 percent.

>Also disturbing about the new trade figures: They show that for the first four months of this year, the total trade deficit is up by 13.43 percent on a year-to-date basis. That’s more than four times as fast as the total economy grew between the first quarter of last year and the first quarter of this year (4.08 percent – both these figures are in pre-inflation dollars).

>With Germany’s trade policies in the Trump administration’s cross-hairs and therefore in the news, it’s noteworthy that the U.S. merchandise shortfall with Germany grew sequentially by 5.43 percent, to $5.48 billion in April. That’s the highest monthly total since last August’s $6.05 billion.

>U.S. goods imports from Germany fell by 4.11 percent sequentially, but America’s goods exports sank on month by 15.34 percent.

> At the same time, the Germany goods deficit is down by 5.24 percent year-to-date.

>Of America’s other major trade partners, only the merchandise deficit with China increased significantly on month – from $24.58 billion to $27.63 billion, or 12.42 percent.

>U.S. goods exports to China advanced by 2.22 percent, but imports rose by 9.55 percent.

>The U.S. merchandise trade deficit with China is 4.21 percent larger in the first four months of this year than it was the first four months of last year.

>The April manufacturing trade deficit of $70.31 billion was just 0.79 percent higher than March’s $69.76 billion. Manufactures exports were off by 7.91 percent sequentially, while the much greater amount of imports fell by just 4.27 percent.

>Year to date, the manufacturing trade deficit looks set to establish yet another annual record. At $276.12 billion, it’s already running 6.20 percent ahead of last year’s pace.

>For the first four months of this year, manufacturing exports are up by 3.44 percent, but imports are 4.64 percent higher.

>The story is even worse in high tech goods. The trade shortfall actual dipped by 0.49 percent on month in April – from $6.07 to $6.04 billion. Exports were 8.28 percent lower than in March, and imports were off by 7.01 percent.

>Year-to-date, however, the high tech trade gap is up by 36.69 percent – from $18.37 billion to $25.11 billion. Exports have inched up by 0.25 percent, but imports are 5.42 percent higher.

>The U.S. trade deficit in oil fell by a sharp 35.56 percent sequentially in April, from $8.43 billion to $5.43 billion – the lowest monthly total since last September ($5.13 billion).

>But the April non-oil goods deficit of $61.71 billion was 9.22 percent higher than March’s $56.50 billion. It was also the highest monthly total for this shortfall – which is heavily influenced by U.S. trade agreements and other trade policy decisions – since March, 2015’s $61.74 billion (the highest monthly figure in a data series that goes back to 1992).

>Moreover, in real terms, the April non-oil goods deficit climbed 7.62 percent on month, to $62.04 billion. That’s also the highest total since March, 2015’s $62.80 billion (which was another all-time high).

>Since the headline U.S. government data on changes in the gross domestic product (GDP) are adjusted for inflation, this lofty figure for the real non-oil goods deficit indicates that this Made in Washington shortfall’s growth will drag on economic growth in the second quarter of this year.

(What’s Left of) Our Economy: Modest Trade Improvement Helps Lift U.S. Growth a Bit

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

The government’s first revision of first quarter gross domestic product (GDP) figures showed that the inflation-adjusted trade deficit shrank slightly more than originally reported on a sequential basis, and therefore boosted growth by fractionally more (0.13 percentage points rather than 0.07 percentage points). Nonetheless, the quarter-to-quarter positive swing in trade’s growth role (1.95 percentage points) now matches the biggest such change since the fourth quarter of 2010. The $599.9 billion quarterly real trade still represented the second biggest quarterly total since the $623.7 billion run up in the first quarter of 2008, just after the last recession officially began.

The new GDP figures show all of the major categories of after-inflation exports and imports still at new quarterly records, with the former generally fractionally higher and the latter generally fractionally lower. (Services exports were the exception.) The cumulative growth drag created by the real trade deficit’s increase during the current, historically feeble economic recovery shrank from 9.70 percent in the advance first quarter GDP read to 9.32 percent. Separate Census data show that the Made in Washington trade drag declined in the first quarter as well, but at 21.26 percent still represented nearly $533 billion in foregone real output.

Here are the trade highlights from this morning’s GDP report:

>The government’s second look at first quarter U.S. gross domestic product (GDP) showed that a slightly smaller real trade deficit than previously reported made a slightly larger contribution to inflation-adjusted growth.

>The new $599.99 billion annualized trade deficit number (down from the previously reported $605 billion) means that the shortfall shrank sequentially by 0.84 percent. As a result, trade’s absolute boost to growth (0.13 percentage points) was larger than the 0.07 percentage point figure reported last month.

>Moreover, the quarterly positive swing in the trade’s growth role from the fourth quarter of last year (when it subtracted 1.82 percentage points) grew to 1.95 percentage points – matching the biggest such total since the fourth quarter of 2010.

>At the same time, this quarterly trade gap was still the second largest since the $623.7 billion deficit registered in the first quarter of 2008, as the economy was just starting to succumb to the Great Recession.

>All categories of exports and imports tracked in the real GDP figures remained at new quarterly records in the first quarter, with all export totals except for services exports rising modestly, and all import totals falling modestly.

>Combined annualized goods and services exports in the first quarter were upgraded from $2.1675 trillion to $2.168 trillion – 1.43 percent higher than the fourth quarter’s level. The previous quarterly all-time high had been $2.1620 trillion annualized, set in the third quarter of last year.

>The goods export total was revised up from $1.4828 trillion to 1.4832 trillion – an increase of 2.04 percent over the fourth quarter. The previous record of $1.4792 trillion was also set in third quarter, 2016.

>Services exports remained unchanged at $685.8 billion annualized – and still topped the previous record of $684 billion record set in the first quarter of 2015.

>Total annualized first quarter imports were pegged at $2.7679 trillion – a bit lower than the previously reported $2.7703 trillion level, and 0.93 percent higher than the fourth quarter total. The new first quarter level still bested the previous $2.7424 billion record of that fourth quarter.

>Goods imports also were revised down fractionally, from $2.2797 trillion to $2.2782 trillion. That still represented a 1.03 percent increase over the fourth quarter level of $2.2549 trillion – the previous record.

>Services imports were reported last month at their eighth straight quarterly record., and they remained so in today’ report. But the previous $488.3 billion figure was revised down to $487.4 billion – a 0.47 percent sequential increase.

>According to these new GDP figures, the trade drag on the current, historically weak, economic recovery was smaller in the first quarter than previously estimated. The 9.70 percent figure was revised down to 9.32 percent – somewhat lower than the fourth quarter’s 9.71 percent. The new data mean that the economy has grown by $233.6 billion less in real terms during the recovery due to the increase in the real trade deficit.

>The trade drag created by the Made in Washington deficit is still more than twice as great, according to the GDP data and separate figures compiled by the Census Bureau. But it, too, has been slightly downgraded.

>This deficit strips out U.S. trade in oil (which is rarely the subject of trade deals or related policy decisions) and services (where liberalization has made relatively little progress). The growth of the remaining real non-oil goods deficit during the current recovery has slowed cumulative inflation adjusted growth by fully 21.26 percent.

>That’s down from the 21.67 percent growth loss that could be calculated from the previous GDP report, but it will means that the growth of this policy-influenced trade deficit has cost the U.S. economy $532.9 billion in cumulative inflation-adjusted production during this recovery.

(What’s Left of) Our Economy: Slight March Trade Deficit Dip Conceals Numerous Milestones, Major Asia Deterioration

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Asia, Canada, Census Bureau, China, European Union, exports, free trade agreements, high tech goods, imports, Japan, KORUS, manufacturing, Mexico, NAFTA, North American Free Trade Agreement, Pacific Rim, recovery, services, South Korea, Trade, trade deficit, {What's Left of) Our Economy

Note:  So many new records and multi-year highs were revealed by the March trade figures released this morning by the Census Bureau that I’m posting this abbreviated, just calculated, write-up — containing all the main highlights — rather than the usual lengthier, more comprehensive version.

America’s goods and services trade deficit slipped by 0.12 percent on month in March, to $43.71 billion, but the decline was more than offset by a noteworthy 0.47 percent upward revision to the originally reported February figure – to $43.76 billion. This modest movement, moreover, masked major deterioration in America’s trade balances with Pacific Rim countries, many of whose surpluses with the United States had been depressed by winter or spring holidays. 

Whereas in February, the American goods deficit with that region plunged sequentially by 30.76 percent, it rebounded in March by 25.39 percent, to $33.55 billion – the biggest such jump since last March 2015’s 52.63 percent. The greatest (15.53 percent) monthly merchandise import increase since then was largely responsible. Although the China goods deficit remained high – mainly because U.S. merchandise exports in March fell for the fifth straight month – the biggest trade swings were recorded with Japan and South Korea. Significantly, March marked the fifth anniversary of the implementation of the bilateral U.S.-Korea free trade agreement (KORUS) 

The March merchandise deficit with Japan soared by nearly 55 percent, to its highest level ($7.42 billion) since April, 2008 ($7.61 billion). And American goods imports from Japan rose by 32.12 percent to $13.04 billion – their highest total since March, 2007 ($13.47 billion). 

U.S. merchandise exports to South Korea hit a new monthly all-time high in March ($4.36 billion), imports rose to their second highest level ever ($6.61 billion), and the large sequential gains left the goods deficit at $2.25 billion. That was 73.50 percent higher than a February figure that itself had fallen by nearly 50 percent.  

Since KORUS’ implementation, in March, 2012, the U.S. merchandise deficit with South Korea has more than quadrupled (from $561.4 million) on a monthly basis.  By that same measure, U.S. goods exports to South Korea are up by 3.99 percent, and goods imports are 38.08 percent higher. 

The huge and chronic U.S. goods deficit with China rose by 7.03 percent sequentially in March, to $24.58 billion, but remained well below record levels. Nonetheless, American merchandise exports to China’s still strongly growing economy fell for the fifth straight month, to $9.63 billion. That was their lowest level since last September ($9.56 billion). 

Asia events also clearly influenced the big on month rebounds in the March trade deficits for manufacturing (up 15.23 percent, to $69.76 billion, after dropping by 19.88 percent) and high tech goods (up 33.87 percent, to $6.07 billion, after plummeting by 46.39 percent).

New records and multi-year highs were set in U.S. trade on other fronts, too. American goods exports to the European Union hit $25.69 billion – a new all-time best. Goods imports from NAFTA partner, Mexico, however, hit a new record as well ($21.02 billion), and helped boost the bilateral merchandise to its highest level ($7.03 billion) since November, 2007 ($7.23 billion) – just before the Great Recession officially began. The United States fared better with its other NAFTA partner, Canada. Its merchandise deficit sank by 35.49 percent, to $1.37 billion, as exports of $24.92 billion represented the best such total since March, 2015 ($25.50 billion), and imports of $26.29 billion represented their highest level since June, 2015 ($27.34 billion).

U.S. global services exports rose in March to a new record high as well ($64.70 billion), and helped push the surplus to its best level ($21.80 billion) since June, 2015 ($22.41 billion). As for overall goods and services exports and imports, they both fell sequentially in March (by 1.02 percent and 0.73 percent, respectively). 

The trade drag on the historically feeble American economic recovery declined as well, from 17.55 percent in the fourth quarter of last year to 17.44 percent of during the first quarter of this year, but still slowed the economy’s cumulative expansion by a staggering $433.76 billion after inflation.

(What’s Left of) Our Economy: New U.S. GDP Report Shows Slight Trade Deficit Drop but Heavy Growth Drag

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

The government’s initial figures for first quarter gross domestic product (GDP) revealed that a slight sequential dip in the U.S. real trade deficit boosted inflation-adjusted growth only fractionally in early 2017. Yet the decline also resulted in the biggest positive sequential swing in trade’s contribution to quarterly growth first quarter (1.89 percentage points) since the fourth quarter of 2010 (1.95 percentage points). Nonetheless, the first quarter’s constant dollar trade deficit ($602.7 billion) was still the second biggest quarterly total since the $623.7 billion run up in the first quarter of 2008, just after the last recession officially began.

These advance first quarter figures show that all of the major categories of after-inflation exports and imports reached new quarterly records, including total goods and services exports ($2.1675 trillion), goods exports ($1.482.8 trillion), services exports ($685.8 billion), total goods and services imports ($2.7703 trillion), goods imports ($2.2797 trillion), and services imports ($488.3 billion). The cumulative growth drag created by the real trade deficit’s increase during the current, historically feeble economic recovery totaled 9.70 percent in the first quarter – down slightly from the 9.71 percent hit in the fourth quarter of 2016. This translates into $239.4 billion in lost real economic expansion. The Made in Washington trade drag – calculated from separate Census figures that isolate trade flows heavily influenced by trade policy – has been much greater. The latest data, which run through the fourth quarter of 2016, reveal it as having reached 21.67 percent, or $532.56 billion in lost growth.

Here are the trade highlights from yesterday morning’s GDP report:

>The government’s first look at first quarter U.S. gross domestic product (GDP) showed that a slight (0.38 percent) sequential dip in the inflation-adjusted trade deficit boosted the period’s modest (0.69 percent annualized) economic growth by a scant 0.07 percentage points.

>At the same time, this marginal lift resulted in the biggest positive quarterly swing in trade’s impact on economic growth (from a 1.82 percentage point reduction to that 0.07 percentage point increase, or a 1.89 percentage point shift) since the last quarter of 2010 – when trade flipped from subtracting 0.83 percentage points from real expansion to adding 1.12 percentage points (a 1.95 percentage point shift).

>The sequential decrease in the real trade deficit, from $605 billion annualized in the fourth quarter to $602.7 billion annualized in the first still left the shortfall at its second highest quarterly level since the first three months of 2008. At that time, just after the last recession officially broke out, the gap hit $623.7 billion.

>All categories of exports and imports tracked in the real GDP figures hit new quarterly records in the first quarter.

>Combined goods and services exports rose on-quarter by 1.41 percent, to $2.1675 trillion annualized. That broke the previous record of $2.1620 trillion annualized, set in the third quarter of last year.

>Goods exports alone increased by 2.01 percent, to $1.4828 trillion annualized – marginally better than the previous record of $1.4792 trillion, also set in third quarter, 2016.

>Services exports inched up by a mere 0.29 percent, to $685.8 billion annualized. That performance bested the old $684 billion record set in the first quarter of 2015.

>Total imports climbed by 1.01 percent, to $2.7703 trillion annualized – their second straight all-time high.

>Goods imports also set a second straight quarterly record, with the first quarter’s $2.2797 billion total annualized besting the fourth quarter’s by 1.10 percent.

>Services imports set their eighth straight quarterly record. The first quarter’s $488.3 billion annualized level was up 0.66 percent from the fourth quarter’s total.

>According to these new GDP figures, the trade drag on the current, historically weak, economic recovery fell slightly on a sequential basis – from 9.71 percent to 9.70 percent. That is, increase in the real trade deficit during the current expansion has reduced its cumulative growth by 239.4 billion.

>Yet the trade drag created by the Made in Washington deficit is now more than twice as great, according to the GDP data and separate figures compiled by the Census Bureau.

>This deficit strips out U.S. trade in oil (which is rarely the subject of trade deals or related policy decisions) and services (where liberalization has made relatively little progress). The growth of the remaining real non-oil goods deficit during the current recovery has slowed cumulative inflation adjusted growth by fully 21.67 percent, or $536.52 billion.

(What’s Left of) Our Economy: U.S. Trade Deficit Took a (Largely Asian) Holiday in February

Tags

Asia, Census Bureau, China, exports, Germany, high tech goods, imports, Japan, Made in Washington trade deficit, manufacturing, New Year, non-oil goods trade deficit, recovery, South Korea, Trade, trade deficit, Trump, {What's Left of) Our Economy

America’s goods and services trade deficit dropped by a marked 9.58 percent on-month in February from the near-five-year high it reached in January. Largely responsible were narrower trade gaps with China (down 26.64 percent) and other Asian countries celebrating their new year. In turn, these results contributed to smaller shortfalls in the manufacturing (down 19.88 percent) and high tech goods (down 46.39 percent) so prominent in their commerce with the United States. Combined goods and services exports in February inched up sequentially to reach their highest level ($192.87 billion) since December, 2014 ($197.46 billion).

Goods exports rose slightly (to $128.46 billion) – their best total since April, 2015 ($128.97 billion). High tech goods imports, meanwhile dropped to their lowest level ($25.39 billion) since February, 2015 ($28.80 billion). In addition, the total trade deficit, the goods deficit, total imports, and goods imports declined by their biggest sequential amounts since last March. Although Germany’s trade and currency practices have been targeted by the Trump administration, February’s goods trade shortfall with Germany ($4.44 billion) was the smallest since January, 2013 ($3.93 billion).

The real non-oil goods deficit – which is heavily influenced by policy and thus should be considered Made in Washington – decreased by 7.30 percent, which suggests that trade’s recovery era drag on U.S. growth will diminish.

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

>The February U.S. trade deficit seemed to take (an Asian) holiday. Its 9.58 percent drop from January’s (downwardly adjusted) near-five-year high of $48.17 billion to $43.56 billion largely reflected subdued business in Asian export-heavy economies that celebrated their new year.

>The longstanding and enormous U.S. merchandise trade deficit with China, for example, plunged by 26.64 percent sequentially in February – from $31.30 billion to $22.97 billion. U.S. goods exports to the still strongly growing Chinese economy decreased by 2.72 percent, but American goods imports were down by 20.82 percent.

>Similarly, the merchandise shortfall with Japan fell by 14.64 percent on month in February, from $5.47 billion to $4.67 billion. U.S. goods exports actually grew (by 3.38 percent) but merchandise imports shrank by a great 6.02 percent.

>In addition, in February the goods trade gap with free trade agreement partner Korea nosedived by almost half – from $2.59 billion to $1.30 billion. U.S. merchandise exports to Korea climbed by 6.06 percent, but the much greater amount of imports was off by 18.21 percent.

>The smaller Asia deficits also showed up in February’s manufacturing and high tech goods trade flows.

>America’s chronic and huge manufacturing trade deficit slid by 19.88 percent, from $75.54 billion to $60.52 billion. Manufactures exports inched up by 0.87 percent, but imports were down 9.07 percent.

>In high tech goods, the U.S. shortfall cratered by 46.39 percent, from $8.46 billion to $4.54 billion. Exports of these products decreased by 2.57 percent, to reach their lowest level since last February ($25.57 billion), but imports dropped by 13.31 percent, to $29.93 billion – their lowest level since February, 2015 ($28.80 billion).

>February saw America’s total exports grow by only 0.19 percent, but that was enough to achieve their highest total ($192.87 billion) since February, 2014 ($197.46 billion).

>Goods exports in February advanced modestly, too (by 0.27 percent on month), but that gain resulted in their best monthly performance since April, 2015 ($128.97 billion).

>Meanwhile, in February the total trade deficit, the goods deficit, total imports, and goods imports fell by their biggest monthly drops since last March – though the latest declines themselves were considerably smaller.

>The 9.58 percent February decrease in the combined goods and services shortfall compares with last March’s 18.27 percent.

>The 6.56 percent February shrinkage of the goods deficit compares with last March’s 12.14 percent decline.

>The 1.77 percent February decline in total imports compares with last March’s 4.65 percent.

>And the 2.13 February percent fall-off in goods imports compares with last March’s 5.59 percent.

>President Trump’s administration has charged Germany with racking up excessive trade surpluses due to currency manipulation and other protectionist practices, but in February, Germany’s merchandise trade surplus with the United States dropped for the fourth straight month. In fact, the $4.44 billion total was the lowest since January, 2013’s $3.93 billion.

>Also down in February was the inflation-adjusted U.S. non-oil goods deficit. These trade flows – which are heavily influenced by American trade agreements and similar policies – are decidedly Made in Washington, and throughout the current economic recovery, they have dragged on feeble U.S. growth. As of year-end, 2016, their increase had slowed cumulative recovery growth by 17.64 percent, or $433.43 billion.

>Calculating the growth drag for the first quarter of 2017 will require a release of first quarter GDP figures – which are scheduled for later this month. But if the Made in Washington deficit continues to shrink, trade could well wind up making a rare net contribution to the expansion.

(What’s Left of) Our Economy: New GDP Figures Reveal Record, Growth-Killing Jump in Real Trade Deficit in Late-2016

Tags

exports, GDP, goods, Great Recession, gross domestic product, growth, imports, inflation-adjusted growth, Made in Washington trade deficit, non-oil goods trade deficit, real GDP, real trade deficit, recovery, services, trade deficit, {What's Left of) Our Economy

The government’s third and final (for now) figures for fourth quarter and full-year 2016 gross domestic product (GDP) revealed that the U.S. real trade deficit recorded its biggest quarterly increase since these figures have been tracked (15.86 percent). Worse, trade took its greatest absolute toll on inflation-adjusted quarterly growth (1.82 percent out of a 2.06 percent annualized increase) since the second quarter of 2004 (1.84 percent out of a 2.93 percent annualized increase).

The new GDP report also showed that, from quarter to quarter, the cumulative trade drag on the current, feeble American recovery rose from 6.57 percent to 9.71 percent. Separate Census figures show that, through 2016, the growth of the Made in Washington trade shortfall (which strips out energy and services) slowed growth by almost twice as much (17.64 percent).

The record fourth quarter real trade deficit per se was revised up from a record $599.6 billion annualized to $605 billion – and remained the biggest such gap since the first quarter of 2008, in the aftermath of the recession’ onset. Meanwhile, the annual 2016 trade deficit was revised up from $561.6 billion to $563 billion – the highest total since 2007.

Quarterly services exports after inflation were revised down from a record $685.5 billion annualized to a non-record $683.8 billion, but the import figure was revised up to set a new record – $485.1 billion annualized. Quarterly total imports and goods import totals were revised up from newly set records – to $2.7424 trillion and $2.2549 trillion annualized, respectively.

All annual real import categories saw previously reported annual record totals revised higher. Annual combined goods and services exports remained at all-time highs, but were revised down slightly to $2.1282 trillion annualized. All annual import categories, which set new quarterly records in late 2016, saw those numbers revised higher – to $2.6912 trillion for combined goods and services imports; to $2.2101 trillion for goods imports; and to $478.7 billion for services imports.

Here are the trade highlights from this morning’s GDP report:

>The new and final (pending the next benchmark revision) fourth quarter and full-year 2016 GDP report made clear that the end of last year saw an even worse American trade performance – dominated by the wrong kinds of records and multi-year worsts – than reported in the previous estimate. And the main victim was the U.S. economy and its still-feeble recovery.

>The sequential jump in the inflation-adjusted trade deficit was revised upward from 14.82 percent to 15.86 percent – the worst such deterioration since the Commerce Department began presenting this figure in 1999.

>As a result, the bite taken by the real trade deficit’s latest sequential growth (1.82 percentage points out of a 2.06 percent annualized real expansion) was the biggest in absolute terms since the second quarter of 2004, when trade subtracted 1.84 percentage points from annualized growth of 2.93 percent.

>The new figures mean that as of the end of 2016, trade had reduced the U.S. economy’s real cumulative growth during the current recovery by 9.71 percent, or $238.7 billion. As of the end of the third quarter, the drag was 6.57 percent.

>Separate figures from the Census Bureau show much greater damage has been inflicted on the economy by a different set of U.S. trade flows – constant-dollar imports and exports minus energy and services, which have not been significantly affected by American trade agreements and similar policy decisions. The rapid growth of the inflation-adjusted American trade deficit stripping out these two sectors – which has been Made in Washington – has slowed cumulative U.S. growth during this recovery by fully 17.64 percent, or $433.43 billion.

>The fourth quarter after-inflation trade deficit was revised up from $599.6 billion annualized to $605 billion – still the highest such total since the first quarter of 2008 ($623.7 billion), shortly after the Great Recession began.

>The full-year 2016 trade deficit was revised up from $561.6 billion after inflation to $563 billion. That represented the highest annual real trade deficit since 2007 ($712.6 billion) – the last pre-recession year – and a 3.68 percent rise from 2015’s $540 billion.

>This morning’s trade figures showed that one real export record reported in the previous GDP estimate is now gone: Quarterly price-adjusted services exports were revised down from $685.5 billion to $683.8 billion – still the third best total on record.

>Unfortunately, after-inflation services imports hit their own new all-time high, as their fourth quarter total was revised up from $483.9 billion annualized to $485.1 billion.

>New quarterly records reported in the previous estimate for two import categories – total imports and goods imports – were both revised even higher this morning. The former total increased from $2.7935 trillion annualized to $2.7424 trillion, while the latter were upgraded from $2.2533 trillion annualized to $2.2549 trillion.

>Annually, inflation-adjusted 2016 goods and services exports remained at a record, as reported in the previous GDP estimate. But the figure was revised down slightly from $2.1399 trillion to $2.1282 trillion. As a result, the annual increase is now 0.36 percent.

>New records were augmented in all import categories. Combined goods and services imports were judged this morning to be $2.6912 trillion instead of $2.6901 trillion. As a result, the 2016 annual increase was 1.15 percent.

>Real goods imports in 2016 were revised up from $2.2097 trillion to $2.2101 trillion. As a result, the annual increase was 0.73 percent.

>Real services imports last year are now pegged at $478.7 billion, not $478.3 billion. As a result, the annual increase was 3.08 percent.

>Estimates were also raised for the real trade deficit’s share of the economy. Previously estimated at 3.57 percent of real GDP for the fourth quarter, the new figure is now 3.60 percent. That’s the highest level since the fourth quarter of 2008 (3.64 percent).

>For all of 2016, the real trade deficit is now judged to be 3.38 percent instead of 3.37 percent. That’s the highest level since 2008 (3.76 percent).

(What’s Left of) Our Economy: A Comeback for the U.S. Trade Deficit – & Most (but not all!) of the Usual Suspects

Tags

Canada, China, energy, exports, GDP, Germany, gross domestic product, high tech goods, imports, Korea, Made in Washington trade deficit, manufactures, Mexico, NAFTA, non-oil goods deficit, North American Free Trade Agreement, oil, recovery, Trade, trade deficit, Trump, {What's Left of) Our Economy

America’s goods and services trade deficit recorded a near-double-digit sequential increase in January to hit $48.49 billion. That monthly total was the highest since March, 2012’s $50.22 billion. Combined goods and services exports inched up sequentially to $192.04 billion – their best performance since December, 2014’s $197.46 billion. But total imports grew some four times faster, to $240.59 billion. That total also was the highest since December, 2014 ($241.21 billion).

America’s pre-inflation oil trade deficit spurred much of the total trade gap’s January rise, soaring by nearly 25 percent sequentially to $7.56 billion – the highest level since July, 2015’s $8.01 billion. An 18.37 percent surge in imports to $16.87 billion, the highest total since January, 2015’s $19.63 billion produced much of this result. But the huge, chronic U.S. manufacturing trade deficit also shot up in January – from $69.52 billion to $75.54 billion. And following a record December monthly plunge in its volatile trade balance, the shortfall in high tech goods more than doubled in January, to $8.46 billion.

The massive and longstanding American merchandise deficit with China rebounded by nearly 13 percent in January from a nine-month low to reach $31.30 billion. The main culprit – the biggest decrease in monthly goods exports to China (13.37 percent) since last January’s 18.87 percent plunge. The goods gap with NAFTA partner Canada jumped by more than 68 percent on month, to $3.62 billion. And the merchandise deficit with free trade partner Korea more than doubled, from a nearly two-year low, to $2.59 billion. Yet the U.S. merchandise deficit with Germany — whose big global surpluses have just been targeted by the Trump administration — hit its lowest level ($4.88 billion) since last February ($4.51 billion), and that with Mexico shrank by just over 10 percent, to $3.95 billion. That was its lowest level since July, 2015 ($3.71 billion).

Most troubling, however, the Made in Washington trade deficit – the gap in goods other than oil that is heavily affected by U.S. trade policy – rose by more than five percent on month to hit $61.43 billion. That total, the highest since March, 2015’s $61.90 billion, signals that the trade drag on the already sluggish current American economic recovery will increase further in the first quarter of this year.

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

>In January, the U.S. trade deficit hit $48.49 billion – its highest monthly level since March, 2012’s $50.22 billion.

>The January total represented a 9.56 percent increase over the December total, which was adjusted only fractionally downward, to $44.26 billion.

>Combined goods and services exports of $192.09 billion represented a 0.56 percent increase over the upwardly revised December figure of $191.01 billion – and the highest monthly result since December, 2014’s $197.46 billion total.

>But combined goods and services imports grew by 2.26 percent in January, from an upwardly revised December level of $225.27 billion to $240.59 billion. That total was also the highest since December, 2014 ($241.21 billion).

>Much of the January trade deficit increase resulted from a 24.72 percent monthly pop in the current-dollar U.S. oil trade deficit. The $7.56 billion total was the highest since July, 2015’s $8.01 billion.

>Pre-inflation oil exports increased by 13.68 percent on month in January, from $8.20 billion to $9.32 billion. But imports surged by 18.37 percent – from $14.26 billion to $16.87 billion. That was their highest total since January, 2015’s $19.63 billion.

>But January’s poor U.S. trade performance was also fueled by an 8.66 percent increase in the massive and chronic manufacturing trade gap, from $69.52 billion to $755.54 billion.

>Manufactures exports sank by 7.02 percent sequentially in January, from $89.36 billion to $83.09 billion. But manufactures imports dipped by only 0.16 percent, from $158.88 billion to $158.62 billion.

>Within manufacturing, the high tech goods deficit worsened dramatically in January, as the monthly shortfall rebounded from a record (71.78 percent) sequential drop in December, to $3.82 billion, to $8.46 billion – i.e., a more-than-doubling.

>U.S. high tech goods exports plummeted in January by 18.93 percent – from $32.18 billion in December to $26.06 billion. Imports, however, declined by only 4.11 percent, from $36.00 billion to $34.52 billion.

>The wider January trade deficits in manufacturing and high tech goods were no doubt linked to the 12.78 percent increase in the American merchandise trade shortfall with China – from $27.76 billion in December (the lowest such figure since last April’s $24.31 billion) to $31.30 billion.

>U.S. goods exports to China fell by 13.37 percent on month in January – from $11.63 billion to $10.07 billion. That was the biggest sequential decrease since last January’s 18.87 percent. U.S. goods imports from China hit $41.38 billion – a 5.07 percent rise from December’s $39.38 billion.

>America’s merchandise deficit with Canada skyrocketed in January by 68.37 percent, from $2.15 billion in December to $3.62 billion. U.S. goods exports to this North American Free Trade Agreement (NAFTA) partner fell 2.35 percent on month, but imports advanced by 4.17 percent.

>The goods deficit with bilateral free trade partner Korea more than doubled in January, from $1.20 billion (the lowest such total since February, 2014’s $1.08 billion) to $2.59 billion. America’s merchandise exports to Korea ticked up by 0.27 percent on month, but its merchandise imports were up 8.91 percent.

>Since the bilateral trade deal went into effect in March, 2012, the U.S. merchandise deficit with Korea has roughly quintupled on a monthly basis.

>By contrast, even though the Trump administration has recently criticized Germany’s burgeoning global trade surpluses, the American merchandise deficit with that country actually shrank on month by 8.72 percent to $4.88 billion.  That was its lowest level since February, 2014 ($4.51 billion).

>Similarly, the United States’ merchandise deficit with its other NAFTA partner, Mexico, fell by 10.13 percent, from $4.39 billion to $3.95 billion. That’s its lowest level since July, 2015 ($3.71 billion).

>At the same time, the 5.21 percent monthly rise in the January real non-oil U.S. goods deficit of $61.43 billion – the biggest such total since March, 2015’s $61.90 billion – spells trouble for American economic growth in the first quarter of this year. This Made in Washington deficit – which strips out areas like energy and services, which are only slightly impacted by American trade policies – influences the most closely followed gross domestic product figures, which are inflation-adjusted.

>Although the final fourth quarter 2016 results are not yet available, preliminary figures so far show that the strong growth of this policy-shaped trade deficit has slowed the cumulative pace of the nation’s historically weak economic recovery by fully 20.56 percent – or $434.78 billion.

Making News: Talking Trump and Trade on Nationally Syndicated Radio Tonight

Tags

Gordon Chang, Making News, The John Batchelor Show, Trade, trade deficit, Trump

I’m pleased to announce that I’ll be returning to John Batchelor’s nationally syndicated radio show tonight to analyze President Trump’s trade policy – and the administration’s new focus on reducing America’s massive and growing trade deficit. Click on this link to listen live on-line at 9:45 PM EST to what’s sure to be a terrific discussion of the Trump approach to the global economy featuring John, co-host Gordon Chang, and me.

As usual, if you’re not able to tune in, I’ll post a link to the podcast as soon as one’s available.  And keep checking back with RealityChek for news of upcoming media appearances and other developments.