The U.S. trade deficit for February rose by $3.3 billion to $71.1 billion even as imports surprisingly fell, the U.S. Bureau of Economic Analysis reported on Wednesday. CPA expected the deficit to rise due to pent-up demand caused by a lifting of pandemic restrictions. However, while overall imports fell 0.7% to a total of $258.3 billion, it was exports that fell even more – down 2.6% to $187.3 billion – leading to another rise in our monthly trade gap with the rest of the world.
For goods, the deficit rose by around $2.8 billion in February to $88.01 billion, a record. Exports declined to $131.1 billion in February from $135.7 billion in January, with imports also falling to $219.1 billion in February from $221.1 in January.
“Our goods deficit is surging and will continue to surge this year, as the US economy grows faster than other major economies. There is a strong likelihood that we hit a trillion-dollar goods deficit and our trade deficit subtracts a full percentage point from GDP growth this year,” commented CPA Chief Economist Jeff Ferry.
Despite this month-over-month fall in imports, it is worth noting that February’s import totals are still higher than those recorded in February 2020 and February 2019.
Exports values were lower than they were in February of both years.
Despite this month-over-month fall in imports, it is worth noting that February’s import totals are still higher than those recorded in February 2020 and February 2019. By comparison, exports values were lower than they were in February of both years.
The year-to-date goods and services deficit increased $56.5 billion, or 68.6% higher than the same period in 2020. Exports of goods only for the two first months of the year are $267.02 billion, and imports are $440.2, making for a $173.2 billion deficit to start the year. This two-month figure is higher than it was in 2020 and pre-pandemic in 2019.
February’s Biggest Trade Gaps
The biggest trade deficits for the month of February were with China ($30.3 billion), European Union ($19 billion), Mexico ($6.8 billion), Germany ($5.3 billion), Japan ($4.5 billion), Canada ($4 billion), Italy ($3.2 billion), France ($2.7 billion), Taiwan ($2.4 billion), South Korea ($2.3 billion), and India ($1.7 billion).
Overall trade with China was lower in February.
- The China trade gap increased $3.1 billion to $30.3 billion in February. Exports to China decreased $4.5 billion to $10.4 billion and imports decreased $1.5 billion to $40.6 billion.
- The deficit with Canada increased $2.2 billion to $4.0 billion in February. Exports decreased by $500 million to $23.7 billion, and imports increased $1.7 billion to $27.7 billion.
- The deficit with Mexico decreased $5.1 billion to $6.8 billion in February. Exports increased $2.1 billion to $22.8 billion, and imports decreased $3 billion to $29.6 billion.
We have been highlighting Vietnam in our monthly trade reports because it is the subject of a currency manipulation complaint by the US Trade Representative and has positioned itself as the go-to offshore hub for China multinationals. The trade deficit for February was $5.7 billion, which is $1 billion less than it was in January, but still the highest ever recorded for February trade with Vietnam, based on Census data.
What We’re Buying, What We’re Selling
For manufactured goods, our top five exports for the month of February were similar to January’s top items, with the exception of semiconductors making the list this time. Pharmaceuticals topped industrial machines as No. 1 as drugmakers rush to get out Covid-19 vaccines.
|1. Pharma||$5.22 billion||$5 billion|
|2. Industrial machines||$5.08 billion||$5.81 billion|
|3. Semiconductors||$4.83 billion||$5.24 billion|
|4. Passenger cars||$4.40 billion||$4.68 billion|
|5. Car parts||$3.93 billion||$4.25 billion|
Here are our top five goods imports for the month. Items are the same as January imports, with pharmaceuticals and cars the top two items again. Cars and pharma are what leads to our trade deficit with much of Europe, especially Germany.
|1. Pharma||$13.60 billion||$17.47 billion|
|2. Passenger cars||$12.05 billion||$13.82 billion|
|3. Cell phones||$9.67 billion||$9.47 billion|
|4. Car parts||$9.39 billion||$9.98 billion|
|5. Computers||$8.61 billion||$9.03 billion|
Heading Towards a $1 Trillion Goods Deficit
The more the U.S. relies on imports, the harder it will be to orchestrate a manufacturing-led post-pandemic recovery, as President Biden has called for in his Build Back Better messaging.
Reshoring critical supply chains and maintaining tariffs is the least Washington can do to slow the march to our first trillion-dollar trade gap in goods, which we suspect will be reached in 2021 or 2022 barring substantial import substitution.
Last year’s deficit in goods hit $915.5 billion. The total deficit ended the year at $681.7 billion thanks to the service industry’s surplus. But even as the U.S. remains a consumer service economy, our exports in this space – led by foreign travelers, finance, and intellectual property fees – the service sector will never be enough to make up for the shortfall in basic manufacturing, pushing us over the edge of a trillion-dollar trade deficit.