By Kenneth Rapoza, CPA Industry Analyst
The December trade deficit in goods and services fell 3.5% to $66.6 billion in December after a big boom in November. One big takeaway from the last month of 2020, China trade is giving way to Mexico in near-shoring effort.
The goods and services deficit for the month of December fell 3.5% to $66. 6 billion, as exports rose 3.4% to $190 billion compared with slower import growth of 1.5% to $256.6 billion. The pandemic is still a factor. Both total exports and total imports are down compared to 2019 levels, the Bureau of Economic Analysis (BEA) data showed on Friday.
The December decrease in the overall goods and services deficit is due to the decline in the goods deficit by $2.8 billion to $84.2billion for the month. November’s goods deficit was over $88 billion, a 14-year high ahead of the holiday spending spree.
For the year 2020, in goods trade, the deficit hit a new all-time high of $915.8 billion. The full-year goods and services deficit rose another $101.9 billion, or 17.7 percent from 2019 to $678.7 billion, the highest figure in 12 years. Exports fell 15.7 percent to a total of $396.4 and imports fell 9.5 percent to a total of $294.5 billion. The decline is mainly due to state-wide lockdowns and weak demand spurred on by the new SARS coronavirus pandemic.
“The US has just clocked up its 45th consecutive year of deficits in the goods trade balance and the goods and services trade balance,” said CPA Chief Economist Jeff Ferry. “History shows that no nation delivers strong economic growth and rising living standards for workers with deep, persistent trade deficits. If the Biden administration is serious about rebuilding middle-class jobs in this country, it must focus on eliminating these huge deficits.”
Interactive trade charts from CPA can be found here.
Shifting Supply Chains
Shuffling of global supply chains out of China can easily be seen in today’s year ending data. The US trimmed $35 billion off last year’s deficit with China. This year was the lowest it’s been since 2011, coming in at $310.8 billion.
The December trade deficit in goods with China fell to $27.2 billion from $30.6 billion in November.
China remains far and away our biggest single deficit nation in terms of trade. As a region, the trade deficit with the Pacific Rim nations, which includes Japan, one of our top five trading partners, is $448.3 billion. That’s nearly half of the total goods deficit the US has with the rest of the world.
After China, the European Union deficit rose in December to $20 billion from $17.3 billion in November. The US ended the year with a $184.3 billion goods deficit with the EU, most of it going to pharmaceutical and automotive imports.
Mexico continues to gain on China as a go-to country in the American supply chain. This year will shatter another record for our trade deficit with them.
In December, the Mexico deficit was in decline at $9.9 billion versus $10.5 billion in November. All told, the trade deficit with Mexico ended the year at $112.7 billion, up $11 billion from 2019. This is the highest trade deficit ever with Mexico. In fact, our trade deficit with Mexico has doubled since 2015.
Of note, while Germany surpassed Vietnam to be our fourth largest deficit trading partner for the month of December — with a shortfall of $6.1 billion versus a $4.9 billion deficit in November, the US registered a year-ending $57.3 billion deficit with Germany compared to the full year deficit with Vietnam. That one hit a record breaking $69.6 billion, as we predicted in previous monthly reports based on BEA and Census trade trends. The US trade deficit with Vietnam rose by $14 billion from a year ago.
It is likely that some of the $35 billion in imported goods that were not sourced from China last year were replaced by the roughly $25 billion in new and increased purchases from Vietnam and Mexico. Offshoring remains a drag on US manufacturing and on the trade gap between us and the rest of the world’s most powerful economies.
2020’s Biggest Trades
Thanks to oil and gas, the US remained a big commodities exporter in 2020. But outside of commodities, the US semiconductor industry is the export lead.
Last year, the US exported $55.2 billion worth of chips worldwide, up from $49.8 billion in 2019.
Our biggest export for the year was pharmaceuticals at $59.3 billion, down from $60.3 billion in 2019.
The US is still making things. Our industrial machine and machine tooling exports rose a tad to $57.3 billion from $57.1 billion in 2019.
On the import side, pharmaceuticals, autos and cellphones from Asia top the list. Pharmaceutical imports ended 2020 at $162.8 billion from $149 billion in 2019. Autos were the second biggest import by value, ending 2020 at $141.6 billion from $175.1 billion in 2019. Cell phone imports totaled $98.5 billion, and that is down from $108 billion.
Worth noting in the trade figures, the US is now importing more semiconductors than it exports. Last year, companies imported $58.5 billion in chips, up around $4 billion from 2019.