The July goods and services trade deficit for July fell by 4.3% to $70.1 billion as imported consumer goods like toys took a mid-summer break, the U.S. Bureau of Economic Analysis said on (BEA) Thursday.
“The COVID-related surge in goods spending is slowing down as consumers rebalance back to a more normal pattern of spending, with slightly less spending on goods, and more on services like restaurants as they become more available,” says Jeff Ferry, chief economist for CPA. “Still, barring a worsening of the already bad global supply chain snafus, we are likely on our way to a trillion-dollar goods deficit this year because the net result of people spending more on their homes and catching up on what they missed in 2020 is more imports. The overvalued dollar and the determined export promotion of countries including Vietnam also contribute to the problem.”
The WSJ had a similar analysis on Thursday.
July exports totaled $212.8 billion, up $2.8 billion from June. And July imports were $282.9 billion, down by around $400 million from June imports. The July decrease in the goods and services deficit reflected a decrease in the goods deficit of $5.5 billion to $87.7 billion and a decrease in the services surplus of $2.4 billion to $17.7 billion.
Still, the year-to-date goods deficit is now $626.2 billion. Assuming an $80 billion monthly difference between exports and imports for the next five months, the U.S. will surpass a $1 trillion trade deficit for the first time in history, as CPA has predicted all year. The lowest monthly goods trade deficit so far this year came in January, when it hit $86.5 billion.
July’s Biggest Trade Gaps
The July figures show ongoing and increasing trade deficits with countries other than China. The trade deficit with China actually fell by $2 billion to $25 billion last month. Year-to-date, our trade deficit with China is now $187.1 billion. Our trade deficit with China looks to be on track to beat last year’s $310.2 billion, much of this thanks to consumer spending and a new American consumer-direct-to-China business model that has Chinese companies like Shein able to simply create websites, YouTube ads, or Amazon Seller accounts that take orders from domestic consumers and place them directly with Chinese manufacturers and shippers.
This has helped push the U.S. towards the trillion-dollar trade gap with the rest of the world.
Our deficit with China in July is down. But it’s up elsewhere:
- The deficit with the European Union rose to $20.8 billion and is now $127 billion on the year. We will beat last year’s deficit of $184.2 billion.
- The deficit with Canada fell to $4.2 billion in July and is now $23.6 billion on the year. Our deficit with Canada will break the 2019 record of $25.9 billion.
- The deficit with Mexico fell also in July to $8.2 billion and is $61.2 billion this year. Mexico’s exports of new cars, primarily, have been hindered due to a semiconductor shortage. Unless that is remedied in the months ahead, then our deficit with Mexico could be smaller this year than it was in 2020 at $113.7 billion; a record-breaker.
- Our deficit with Vietnam is bigger than our deficit with Germany. In July it was $7.3 billion, bringing the total deficit to $49.4 billion compared to the $39.6 billion deficit with Germany.
It is worth noting that Vietnam has become an outpost of Chinese multinationals who have been using it as a transshipment country to bypass tariffs. Chinese companies have also been investing there, using Vietnam for final assembly in many cases to ship to the U.S. Many factories are currently closed in Vietnam due to the COVID pandemic but when that ends, Vietnam will continue to climb up the league table of top importers into the U.S.
Assuming an average monthly goods trade deficit with Vietnam of $7 billion monthly, then the U.S. trade deficit with them will be over $84 billion in 2021, yet another record-breaker for U.S.-Vietnam trade.