April Trade Deficit Surprisingly Falls, But U.S. On Track For $1 Trillion Goods Deficit

The goods and services trade deficit for April surprisingly declined to a total of $68.9 billion, down from a revised higher $75 billion in March, according to Tuesday’s data from the U.S. Bureau of Economic Analysis (BEA). At first glance, it appears much of the $6.1 billion decline was thanks to a $6 billion decline in imports from China.

The deficit with China decreased by $7.1 billion to $32.4 billion in April. Exports to China rose $1 billion to $13.1 billion, but imports – while lower than the previous month – were much more, at $45.5 billion.

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Worldwide exports of goods increased by a small margin of $1.6 billion to reach $145.3 billion in April, up from $142.9 billion in March. Capital goods were the biggest mover, increasing by $2.1 billion with a little over half of that coming from civilian aircraft. Automotive vehicles, parts, and engines decreased $1 billion with passenger car and truck exports both down.

Automotive had a slower month overall, with imports down as well. Automotive vehicles, parts, and engines decreased $1.1 billion.

Consumer goods imports fell by $2.6 billion. After some serious front-running by importers, we are now seeing a slowdown in purchase orders. Worth noting, over the last two weeks, at least two port cities in China have taken to lockdown measures to control a supposed Covid-19 outbreak. This could lead to skewed numbers for May.

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Cracking the $1 Trillion Trade Barrier

Today’s deficit decline does little to dent the year-to-date (YTD) goods deficit total, now at $355.1 billion for the first four months of the year. At this rate, the U.S. should end the year with a roughly $1 trillion goods deficit.  With a YTD goods and services deficit of $281.7 billion, the U.S. is on track for an $840 billion total trade deficit (goods and services) this year. Both of those figures would be U.S. and world records, far ahead of the previous record figures set in 2006.

CPA chief economist Jeff Ferry said, “The trade deficit is heading towards record totals this year, propelled by soaring consumer purchases of imported durable goods and foreign producers exploiting human rights abuses, government subsidies, and other unfair practices to take U.S. market share. This morning’s Supply Chain document shows the White House is talking the talk about building resilient U.S. supply chains in critical industries. It’s now urgent for it to walk the walk by limiting soaring imports and creating a framework urgently that incentivizes U.S. companies to invest in U.S. manufacturing.”

April’s Biggest Trade Gaps

The U.S. trade deficits for the month were led by China ($32.4 bln), European Union ($16.1 bln), Mexico ($10 bln), Japan ($5.4 bln), Germany ($5.1), and Taiwan ($3.2 bln). Germany is 30% of our deficit with the EU as their economic model promotes austerity at home, with support via free land and other incentives for their global corporations to sell to world markets instead. Autos and pharmaceuticals remain the lead cause of our deficit with Germany.

Other than our deficit falling with China in April:

• The deficit with the European Union decreased $1 billion to $16.1 billion in April. Exports increased $2 billion to $22.2 billion and imports increased $1 billion to $38.3 billion.
• The deficit with Mexico increased $1.2 billion to $10 billion in April. Exports increased less than $100 million to $22.5 billion overall while imports from Mexico rose $1.3 billion to $32.4 billion.
• Vietnam has been a nation we have been watching closely. The trade deficit stood at $7.01 billion in April, down from $7.8 billion in March, but more than two times that of Taiwan. The deficit with Taiwan widened by around $900 million to $3.2 billion thanks to semiconductor demand.

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What We’re Buying, What We’re Selling

For manufactured goods, our top five exports for the month of April are always the same. They just shift around in their starting lineup. This month, pharmaceuticals fall from their number one export position to number three.

As pharmaceutical exports from the U.S. fall, they are now our number one import once again after losing out to automotive in March.

Today’s surprise fall in the trade deficit on a monthly basis versus March clearly does not put a dent in our march towards a trillion-dollar goods deficit. Recognizing that the U.S. is the world’s largest consumer market, and we cannot make everything, the more dependent we are on foreign sources of manufactured goods, the less likely we are to ever engineer a blue-collar, manufacturing renaissance in the U.S. economy. That puts the onus on high skilled engineering labor – the software designers, for example – which is a step off the path to the inclusive economics the Biden administration has been touting since 2020.

Amendments to the U.S. Competition and Innovation Act also do not bode well for manufacturing as it maintains the old near-zero tariff trade practices in the Miscellaneous Tariff Bill (despite reconfiguring for labor and environmental issues) and calls for the removal of import restrictions on medical supplies, putting manufacturers at the mercy of government contracts to stay in business.

CPA believes that the U.S. needs to take action to reshore and rebuild its manufacturing base, not only for supply chain resiliency but for the long-term economic well-being of the country. Clearly, China is doing just that.

See the CPA Reshoring Index report for June by CPA economist Jeff Ferry