Trade deficit with China continues to decline
By Steven L. Byers, PhD, CPA Senior Economist
The US international trade deficit in goods and services fell 7.6 percent in October, to $47.2 billion, as imports declined more than exports.
This is the lowest monthly trade deficit figure since May 2018. The October decrease is due to a $3.7 billion drop in the goods deficit, to $68.0 billion, and an increase in the services surplus of $0.2 billion, to $20.8 billion. October exports were $207.1 billion, down 0.2 percent from September’s revised figures, while October imports were $254.3 billion, a 1.7 percent decrease of $4.3 billion from the September figures.
The closely-watched US goods trade deficit with China fell 1.1 percent to $31.3 billion in October. Compared with last October, it was 27.4 percent smaller. On a year-to-date basis, the US goods deficit with China was $294.5 billion, down 14.6 percent from 2018.
“The fall in our monthly trade deficit, to under $50 billion for the first time in 17 months, combined with the 15 percent drop in our year-to-date China trade deficit, shows the Trump administration’s tariff policies are working,” said Jeff Ferry, CPA Chief Economist. “The US economy continues to grow, consumer spending is growing, and inflation remains subdued. If we keep imports in check, we provide more demand for US producers, which is the best path to growth and broadly shared prosperity.”
Record EU Goods Imports
Looking at other regions, America’s bilateral trade balance with the European Union (EU) continues to deteriorate. The U.S. trade deficit with the EU hit $16.4 billion in October, and has reached $149.5 billion on a year-to-date basis. Goods imports from the EU hit an all-time high for a single month, reaching $46.6 billion in October. Imports from the EU are on pace to top $500 billion in 2019.
The burgeoning EU trade deficit is the result of a depreciating Euro, stagnating growth in the Eurozone, and import growth in some specific sectors. Since November 4, the Euro has depreciated via the US dollar by slightly more than 2 percent. Astonishingly, America’s largest monthly goods deficit within the EU was with Ireland. In October, the US-Ireland goods deficit hit $5.31 billion, compared with $5.28 billion for the US-Germany deficit. The German economy, at $4 trillion of GDP last year, is ten times larger than the Irish. A small island once known for Guinness beer and potato farming is today a large exporter of pharmaceuticals to the US and a notorious tax haven for tax avoiders like Apple. Economists believe that the goods trade figures exclude the effects of capital flows due to profit shifting into tax havens, but in Ireland’s case the sums are so large that there must be a question mark over the trade data.
Elsewhere, the effect of producers moving their US-bound production out of China is leading to larger deficits with other nations. The US trade deficit with Japan widened 5.2 percent to $58.7 billion. The deficit with South Korea widened 18.0 percent, to $17.8 billion. For India, the trade deficit increased 8.1 percent, to $20.3 billion; for Canada it was up 24.9 percent to $20.4 billion; and, for Mexico it rose 28.0 percent to $84.9 billion.
Exports of agricultural commodities decreased $281 million over the revised September figure but increased on a year-to-date basis by $59 million compared to a year ago. Within the major agricultural commodities there were winners and losers. Soybean exports decreased in October by $794 million, but year-to-date they are ahead of 2018 exports by $3.2 billion. Exports of wheat were up $151 million from the previous month and rose on a year-to-date basis to $868 million. Corn exports increased $93 million in October but were down $4.1 billion year-to-date from a year ago. Exports of dairy products were up slightly by $21 million in October and are up $168 million over the 2018 year-to-date figure.
For some major categories of imports the year-to-date picture is mixed. Iron and steel mill product imports fell 19.2 percent, to 13.9 billion. Telecommunications equipment imports fell by 17.2 percent, to $51.7 billion. Civilian aircraft imports rose 20.8 percent, to $12.2 billion. And automobile imports rose 2.8 percent, to $148.1B. Pharmaceutical imports continue to increase at a rapid pace and climbed 12.7 percent to $124.3 billion.
President Trump announced on Monday, December 2, that the US is immediately imposing tariffs on steel and aluminum from Brazil and Argentina in response to a devaluation of their currencies. Brazil and Argentina had both been granted temporary suspension of tariffs on steel and aluminum when the tariffs were initially imposed in May of 2018.
US-China trade negotiations continue. The outcome remains uncertain. A new round of tariffs on roughly $160 billion of Chinese imports is scheduled to go into effect on December 15, but might be postponed if talks continue to be fruitful.