Non-competitive Dollar, Front-Running of Tariffs Drive Up October Deficit, Imports
By Jeff Ferry, CPA Research Director
The monthly US trade deficit rose by $0.9 billion in October, reaching $55.5 billion, as exports fell slightly while imports rose by $600 million. The monthly data suggests that tariffs have yet to impact the trade picture. Anecdotal evidence suggests that heavy front-loading of imports—to beat looming tariff deadlines—has pushed up import levels while export levels are tracking global demand, with lackluster economic growth in many major nations.
On a year-to-date basis, our trade deficit is running at $502.7 billion, 11.4 percent higher than the year-ago period, suggesting that the full-year 2018 trade deficit should come in around $615 billion, the worst figure since 2008. The story on the goods side is equally gloomy. Our goods deficit rose 1.1 percent in the month to $78.1 billion. On a year-to-date basis, our goods deficit through October was $729 billion, 9.8 percent worse than a year ago. On that basis, this year’s goods deficit is likely to reach $886 billion, which would be our highest-ever goods deficit.
Another Record China Deficit
On a country basis, our bilateral deficit with China hit another record, reaching $43.1 billion (not seasonally adjusted) in October, 7 percent worse than the September figure. On a year-to-date basis, our China deficit reached $344.5 billion, up 11.3 percent from the year-earlier period, suggesting our China deficit for the year will reach some $418 billion this year, another all-time record for a bilateral deficit between any two nations in the world.
“The October data shows that our trade deficit continues to widen, due to the non-competitive dollar, which makes imports cheaper in US markets and our exports more expensive worldwide, and faster US economic growth than elsewhere in the world,” said CPA Research Director Jeff Ferry. “Our trade deficit with China has also widened significantly. There’s evidence that Chinese exporters and US importers have been front-loading shipments to beat the tariffs which came into effect in September and are likely to rise to 25 percent early next year. However there is also evidence that the tariffs are beginning to have an impact on tariffed goods. This is not a one-night wonder but a medium-term and long-term battle to reduce the deficit and stimulate US production and we see many signs of growing US production in the tariffed sectors.”
Widening Deficits in Advanced Tech and Motor Vehicles
October’s advanced technology deficit stood out as one of the worst figures for the month, with the deficit widening by 14 percent to $14.4 billion. On a year-to-date-basis, our deficit in Advanced Technology Products (ATP) hit $107.3 billion, 27 percent worse than the year-earlier period. ATP data is not seasonally adjusted, and so the monthly figures reflect the surge that typically occurs as we approach the holiday selling season. But this month the worsening ATP picture was not for once attributable to technology products. Instead, our biotechnology deficit widened by just over $1 billion this month to $1.7 billion. On a year-to-date basis, our biotech deficit is up 150 percent to $13 billion. Also, a fall in the aerospace surplus of $693 million and a rise in the opto-electronics deficit of $612 million in the month added to the widening of the ATP deficit.
As usual, advanced technology trade with China accounted for the lion’s share of the ATP deficit, 94 percent of the total this month. Notably, our ATP deficit with Ireland widened by 23 percent to reach $19.1 billion. Ireland is a large exporter of pharmaceuticals and biotech products, many of them produced by US multinationals with Irish plants.
In the motor vehicle sector, our imports of vehicles, engines, and parts hit a new all-time high in October of $31.8 billion. Imports in the sector rose by $727 million while exports fell by $234 million to $12.7 billion. On a year-to-date basis, our motor vehicle sector deficit is $172.9 billion, 1 percent worse than the $167.5 billion figure for the year-ago period. The motor vehicle deficit is likely to worsen as General Motors carries out its plan to shut five US plants.
In the farm sector, Chinese retaliation in response to US tariffs is having an impact. Soybean exports fell 47 percent from September to $948 million in October. However corn exports rose 11.9 percent to $1.2 billion, and wheat exports were also up. On a year-to-date basis, soybean exports are up 24 percent in the January-to-October period to $24.1 billion. Exports in the entire foods, feeds, and beverages sector is up year-to-date by 8.2 percent to $120.4 billion.