The U.S. deficit in goods and services rose 2% to $65 billion for the month of July, but two things stand out in Wednesday’s trade data published by the Bureau of Economic Analysis. Judging by the monthly deficit figures over a two-year period, we are now in line with the three-month moving average. The deficit has essentially flatlined, which could be due to a slowing economy, or the fact that the post-pandemic shipping orders have calmed down following the over-abundance of shipments in 2021 and into early 2022.
But the other data point that sticks out like a sore thumb here is China. Imports from China and our goods trade deficit with China were each around $10 billion smaller than in the same period a year ago. July. On present patterns, our annual goods trade deficit with China is likely to come in at around $260 billion, down around 30% compared with last year’s $382 billion. This is evidence that the China tariffs are working.
But China still leads as a source of imports and the biggest source of our trade deficit. Over the summer, we were treated to raving headlines about Mexico’s imports surpassing China’s imports. While this happened early in the third quarter, most of this can be blamed on China itself. Their Zero Covid policies kept factories in slow motion and there was a general disruption of business there. However, as a source of American trade gaps, China rules the roost. It accounted for $24 billion of the goods trade deficit in July. That number is greater than the deficit reported with Mexico ($12.8 billion), Canada ($4 billion) and Germany ($7.2 billion).
America’s goods trade deficit with China rose by $1.2 billion in July. In the simplest of terms, it means we continue to buy more from them than they buy from us. Some of this can also be explained by China coming out of its public health emergency, and a weak renminbi. Even though the RMB strengthened in July versus its steady fall against the dollar in June, the RMB has gone from around 6.7 to the dollar to 7.3 to the dollar currently. This exchange rate is similar to last year’s, however. Meanwhile, the U.S. deficit with tiny Vietnam for July was $9.34 billion – its biggest trade gap for the year. So far, the deficit with Vietnam is $57.26 billion, which is comparable to our year-to-date deficit with Germany ($48.7 billion), and greater than our $40.14 billion deficit with Japan. Vietnam has become an outpost of China corporate offshoring since the implementation of Section 301 tariffs and anti-dumping/countervailing duties on China-based solar companies.
On balance, the goods deficit for the month of July was $89.98 billion. The Jan-July goods deficit is $628.42 billion. That’s less than the $731.94 billion over the same period last year. Still, at this rate, assuming the U.S. economy posts another $80 billion deficit each month between August and December, the overall goods deficit will end the year at $1.03 trillion at a minimum. This will be the third year in a row that the U.S. posts a trillion-dollar goods gap with the world.
See CPA’s Trade Database for monthly and year comparable trade figures.
The U.S. maintains its highest trade deficit in goods Asia and then with rich Europe.
Year-to-date ending in July, the U.S. goods gap with Asia Pacific countries is $258.62 billion. China accounts for more than half of that at $155.81 billion. Japan, South Korea and Taiwan make up the next three.
Always interesting to see is the massive trade deficit between the U.S. and Europe. The goods deficit with Europe year-ending July was $134.14 billion, with EU nations accounting for the bulk of that – or $119.79 billion.
The third biggest trade gap is with Mexico and Canada, which comprise the new NAFTA, now known as the USMCA. That deficit year-ending July is $125.15 billion, led by Mexico. Mexico, like Vietnam, is taking market share away from China as a go-to manufacturing hub for U.S. companies.
Some Trade Curiosities
Always interesting to note is that while the U.S. is considered a leader in advanced technology, with the exception of aircraft – be it commercial aircraft or military – the U.S. has a deficit with the world on nearly everything the Bureau of Economic Analysis (BEA) labels as advanced technology. The U.S. has minor surpluses with the world in advanced materials and weapons, but has large deficits in so-called ICT equipment – Information and Communications Technology. And in new biotech, which includes on-patent pharmaceutical drugs.
The year-to-date deficit ending in July for all advanced technology sectors was $115.24 billion, down from $132.95 billion recorded over the same period in 2022.
We have been hearing for some time that the U.S. is a fossil fuels power, but the country continues to be a net importer of crude oil, most of it from Canada. The crude oil deficit year to date was around $26 billion. However, it is really natural gas that matters here. The U.S. recorded a Jan-July surplus of $6.01 billion in the oil and gas trade, thanks to exports of natural gas in all its forms, primarily liquefied.
Textile and apparel continue to be import-driven. The Jan-July deficit for apparel and accessories was $46.7 billion; textile mill products had an $11.74 billion deficit, and fabrics had a $508.6 million deficit.
Lastly, many Americans like to think of the country as a livestock powerhouse. The reality is that the U.S. is more of a soy and grain power and the rest of its food source is imported. The U.S. recorded an $891 million deficit in beef and other livestock in July, and has now hit a $6.26 billion deficit for the Jan-July period. Fish is no better. The year-ending in July deficit in fish products was $5.3 billion.
