CPA Analysis: January US Trade Deficit Improves By $8.8 Billion

China goods trade deficit shrinks to 7-month low

Washington. Coalition for a Prosperous America (CPA) Chief Economist Jeff Ferry has analyzed this morning’s Commerce Department data showing that the monthly US trade deficit shrank dramatically in January, to $51.1 billion, an $8.8 billion drop from December. Most of the decline came from an encouraging decrease in the goods deficit with China, which fell $2.3 billion, to $34.5 billion. Overall, China imports declined by $4.4 billion.  

“A decline in our massive China trade deficit is always good news,” said Dan DiMicco, Chairman of the Coalition for a Prosperous America (CPA). “The reduction in our reliance on China is helping US manufacturers. But one month’s data is not enough to set a trend. America’s record goods deficit with China in 2018 shows how much work remains, particularly when the US dollar remains hugely overvalued.”

CPA has frequently noted the difficulties faced by US manufacturers and agricultural producers due to the rising value of the dollar. A recent study by CPA’s economic team determined the US dollar to be overvalued by 27 percent. CPA estimates that adjusting the dollar to a competitive level could yield an estimated $1 trillion in additional GDP over six years, along with the creation of 6.7 million new jobs.

Last week, CPA’s CEO, Michael Stumo, published a column in the Columbus Dispatch explaining the economic harm caused by an excessively strong and non-competitive dollar. Stumo urged Washington to consider action to revalue the dollar to a competitive level.

This morning’s Commerce Department data also revealed that, while the overall monthly US trade deficit declined in January, goods deficits still increased with various trading partners, including Mexico (up $5.8 billion), Ireland (up $4.1 billion), and South Korea (which rose to a new monthly record of $3.0 billion).

Stumo observed, “The drop in the China goods deficit was counterbalanced, in part, by rising trade debt with other trading partners. President Trump’s tariffs are necessary for national and economic security in relation to China’s predatory economic strategy. We absolutely need to guard against Beijing’s attempts to erode our economic, military, and geopolitical strength. However, a full America First trade and economic strategy must include adjusting the dollar exchange rate to a competitive price. Otherwise we will continue growing our trade deficit even as it may shift from China to other countries.”

In January, US exports to China fell by $2.0 billion, suggesting that China’s retaliatory tariffs on US exports have had an impact. However, a much larger decline in US imports from China suggests that the tariffs have reduced incentives to purchase Chinese-made goods. Additionally, importers are no longer front-running the tariffs by importing more from China ahead of a presumed 25 percent tariff increase. 

Click here
 for a CPA’s full analysis of this morning’s trade figures.

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