By Jeff Ferry, Chief Economist
The monthly US trade deficit climbed to $54.6 billion in May as the COVID crisis dented exports more than imports.
It’s the worst monthly trade deficit figure since December 2018. May exports of $144.5 billion were down 4.4 percent on the April figure, while imports of $199.1 billion were only 0.9 percent below the April figure. Comparing year-on-year data shows the impact of the COVID crisis on US trade: . exports in May were down 32.1 percent compared to May 2019, while imports fell only 24.6 percent.
The COVID crisis was visible too in pharmaceutical imports. In the month of May, pharmaceutical imports were flat at $13.7 billion. But on a year-to-date basis, pharmaceutical imports are the only consumer goods category to show an increase over 2019, up 14.6 percent to $68.9 billion in the first five months of this year. By comparison, cell phone imports, the second largest category of consumer goods imports, fell 24.2 percent in the period, to $35.3 billion. Total consumer goods imports declined 13.2 percent in the first five months of the year to $239.7 billion.
On a bilateral basis, our trade deficit with China increased to $27.0 billion in May, 16.7 percent worse than the April figure. However, May was a good month for US exports to China, with exports of $9.6 billion at their highest monthly level since last November. Imports, of course, continue to run at about four times the level of exports, leading to a large deficit.
Our worst bilateral deficit in Europe this month was with Switzerland, at $11.0 billion. Switzerland is a center of pharmaceutical production and export. Our year-to-date trade deficit with Switzerland came in at $27.4 billion. Although this figure is for only five months, it is already worse than last year’s full-year deficit with Switzerland ($26.7 billion) and indicates that 2020 will mark our worst-ever deficit with Switzerland. Our second-worst European deficit in May was with Ireland, another pharmaceutical producer. At $4.5 billion, that deficit exceeded our deficit with Germany of $3.6 billion in May. Our deficit with Germany was 16.4 percent smaller than the April deficit, reflecting shutdowns in manufacturing that impacted Germany’s large automotive and machinery industries.
The US deficit with the 27-nation European Union came in at $11.8 billion, 22.8 percent lower than the April figure. However, on a year-to-date basis, the EU deficit of $68.2 billion is not much better than the 2019 figure of $70.2 billion.
Our deficit with Mexico for May was $4.5 billion, worse than the April figure of $3.3 billion, but less than half the level of May 2019, when our Mexican deficit was $9.5 billion. US trade with Mexico is heavily dependent on the automotive industry and most of the Mexican auto industry did not reopen in May, depressing trade, causing shortages of parts, and idling some auto plants in the US. The tight integration between US and Mexican auto and parts plants, perennially praised by multinational auto makers, investors, and free traders, has turned out to be a handicap during the COVID crisis, since US multinationals have little ability to influence the Mexican government.
Exports of foods, feeds, and beverages were down slightly in May. The first five months of the year showed little change from a year ago, indicating this category has seen relatively little impact from the COVID crisis. Soybeans is an area of concern for US farmers and for US-China relations. In May, US soybean exports were down just 2.4 percent on April at $1.57 billion. On a year-to-date basis, US soybeans exports are down 14.1 percent at $6.8 billion. A look at the bilateral US-China figures, however, shows that US soybean exports to China fell 60.3 percent from the April level, to $61.7 million in May. On a year-to-date basis, US soybean exports to China were $1.25 billion, down 46.1 percent from the 2019 level, and down 66.4 percent from the benchmark 2017 level, before China’s tariffs on US agriculture took effect. The fall in soybean exports to China raises continued questions about whether the so-called US-China Phase One deal signed in January can survive.
In other trade news, the new USMCA agreement with Mexico took effect yesterday, July 1. As both nations recover from the COVID crisis, observers will watch closely to see what impact the new rules of origin have on automotive production and trade. The US Trade Representative’s office is also engaged in talks on free trade agreements with the United Kingdom and Kenya. Both of those talks may well drag on until after the November election.
