By Jeff Ferry
CPA Chief Economist
Trade data for November 2018 published Wednesday by the Department of Commerce indicates that the Trump Administration’s tariffs may finally be improving our balance of trade.
The November goods and services deficit came in at $49.3 billion, 11.5 percent better than October’s figure of $55.7 billion. Equally significant, the November figure was only a hair (0.7 percent to be exact) above the November 2017 deficit of $49.0B. Deficits in previous months in 2018 were typically 10 to 15 percent worse than the corresponding month in 2017. If November is now level-pegging 2017 figures, that is a healthy improvement over the earlier months of 2018.
Almost all the trade balance improvement in November came in goods. The goods deficit shrank from $78.3B in October to just $71.6B in November. That’s the smallest goods deficit since June. The services surplus actually got worse, shrinking by 1.3 percent or $287 million to $22.3 billion. However, with our January-November goods deficit now at $800.7 billion and one month’s report yet to come, we are still heading for a full-year 2018 goods deficit of around $870 billion, the largest goods trade deficit in American (and world) history.
November’s $7 billion improvement in the goods deficit also shows up in the bilateral national deficit figures (which include goods only). Our deficit with China contracted to $37.9 billion, a 12.2 percent improvement over the $43.1 figure from October (which was the worst single-month bilateral deficit in world history). Similarly, our deficit with Germany shrank in November by 6.4 percent to $5.8 billion. Our deficit with the 28-nation European Union shrank even more, by 14.2 percent to $15.1 billion. Our deficit with Mexico also improved, 7.1 percent better at $6.7 billion.
Imports: Cellphones Slump While Drugs Surge
Our goods exports for the month shrank slightly to $140.4 billion, down 1 percent from October. The standouts in the month were civilian aircraft, where exports rose by $996 million to $5.8 billion. This no doubt reflects Boeing’s recent, robust financial reports. Our automotive exports (vehicles and parts) on the other hand fell 3 percent to $12.3 billion. Our automotive imports rose 0.8 percent to $32.1 billion, leaving us with a $19.8 billion deficit in the auto sector.
In agriculture, soybean exports fell 10 percent in the month to $875 million. But on a year-to-date basis, soybean exports are up sharply, by 19.6 percent to $25.0 billion, so volume is holding up well even if China’s retaliatory tariffs have led to price weakness in soybeans. It’s a similar story in corn, where January to November exports are up 34 percent to $12.6 billion in the first eleven months of 2018.
On the imports side, the most noticeable change in November was a sharp falloff in imports of cellphones. Imports of “cellphones and other household goods,” as Census terms the category, were down a whopping 22.8 percent, to $7.8 billion in the month. Cellphone imports are also down 19 percent on year-ago levels. Cellphones account for more than half of the $4.3 billion decline in consumer goods imports for the month. Imports of industrial supplies fell by $3.4 billion. However, on the consumer side, pharmaceutical imports were up year-on-year in November by a striking 31 percent, to $11.5 billion. Pharma has now surpassed cellphones as the largest single source of imports among the consumer goods subcategories in the Census report.
Overall, is the $7.9 decline in goods imports for November the first sign that tariffs are working, and that the US trade deficit could continue to shrink? It’s hard to make a definitive judgment. The sharp reduction in our China deficit suggests the tariffs could be biting. This is backed up by the numerous companies that have said publicly they are beginning to move production out of China (usually to other Asian locales) to avoid a trade dispute that looks like it could continue for years. Further, iron and steel imports, which have been up slightly over 2017 for most of 2018’s data, actually declined 9 percent in November.
On the other hand, the upward pressure on costs of US tariffs have largely been offset by the rising dollar in 2018. It’s possible that the slump in cellphone sales is due to the failure of new products to excite consumers (as Apple analysts have been telling us), and the slump in industrial imports could be due to the sagging price of oil and other petroleum products.
The other concern is that the US economy still looks positioned to grow at around 2.5 percent in 2019, while Germany, Italy, and China all appear to be getting close to negative growth (based not on China’s official GDP statistics but on commentary by knowledgeable China-watchers), and this could signal a world economy growing more slowly than the US economy, putting downward pressure on our exports.