By Steven L. Byers, PhD and Jeff Ferry
The US scored the smallest trade deficit since October 2016 as tariffs slowed the flow of imports into the country.
With imports down while US consumption continues to rise, American workers grabbed a larger share of domestic demand. The US trade deficit in goods and services for November 2019 was $43.1 billion, down 8.2 percent on the previous month and down 19.6 percent on the year-earlier figure.
The November decline is due to a $3.9 billion decrease in the goods deficit to $63.9 billion and a slight decrease in the services surplus of $0.1 billion to $20.8 billion.
Good imports of $201.1 billion in November were at their lowest level in two years and are down 5.7 percent on the year-ago November figure. Meanwhile, goods exports at $137.2 billion were flat on the previous month and down just 1.4 percent on the year-ago November.
Over the period January to November 2019, the US trade deficit was $562.9 billion. The full-year 2019 trade deficit is likely to be in the $600 billion range, some 4 percent better than the 2018 figure. The annual goods deficit is likely to hit $850 billion, also 4 percent improved from 2018.
“The strong improvement in goods imports and the overall trade deficit, while our economy continues to grow at 2.1 percent a year and personal consumption at 3 percent, shows that tariff intervention is increasing the US producer share of domestic market,” said CPA Chief Economist Jeff Ferry. “Of course, with a trade deficit this year of some $600 billion there is still much to do to get this economy back onto the sort of growth path for incomes and jobs the American people expect, and which this economy is capable of delivering.”
US-China Trade Deficit Shrinking
The trade deficit with China continued to improve. The US-China deficit fell by $2.2 billion in November to $25.6 billion. For once, exports and imports went in opposite directions, with both improving from the US point of view. Exports to China rose $1.4 billion to $8.9 billion while imports fell $0.8 billion to $34.5 billion.
Year-to-date the US goods deficit with China was $319.8 billion, down 16.1 percent or $61 billion from the corresponding period in 2018. Total exports through November were $99.7 billion with imports at $419.5 billion.
Improved Monthly Goods Trade Deficit with the EU
With regard to other major trading partners, the monthly goods trade deficit with the European Union (EU) improved by 6.1 percent in November to $13.5 billion. Despite this, the year-to-date EU goods trade deficit, at $163.2 billion, was $9.7 billion larger than in 2018. However, the rising euro might begin to improve the US-EU balance. The decline in the euro vis-à-vis the dollar bottomed out at the end of September and the euro has appreciated 2.5 percent since. The November trade deficit with Germany increased 4.8 percent to $5.2 billion. Year-to-date however, the US-Germany trade deficit decreased 1.0 percent to $61.7 billion.
Production migrating from China in response to ongoing tariffs may be lowering our deficit with China but is causing America’s trade deficit with other major trading partners to swell. Our deficit with Japan widened 4.7 percent to $64.6 billion. The trade deficit with South Korea widened 16.0 percent to $18.8 billion. For India the deficit widened 10.2 percent to $21.5 billion; for Canada it was up 23.2 percent to $22.3 billion; and, for Mexico it rose 27.8 percent to $92.3 billion.
Good News for Farmers
Exports of agricultural commodities increased by $579 million over the revised October figure but are still $3.5 billion lower than a year ago. Within the major agricultural commodities there were winners and losers. Soybean exports increased in November by $250 million, and are ahead, year-to-date over 2018 exports by $4.1 billion. Exports of wheat were down $78 million from the previous month and rose on a year-to-date basis to $911 million. Corn exports decreased $4 million in November and down $4.6 billion year-to-date from 2018. Exports of dairy products were up slightly by $7 million in November, up $268 million over the 2018 year-to-date figure.
For some major categories of industrial imports the year-to-date picture is mixed. Iron & steel mill product imports fell 10.1% to 8.4 billion. Telecommunications equipment imports fell by 19.7 percent to $57.1B. Civilian aircraft imports rose 16.2 percent to $13.1B and automobile imports rose 2.0 percent to $161.8 billion. Pharmaceutical imports continue to increase a rapid pace, up 12.7 percent to $124.3 billion.
A trade deal between the US and Japan went into effect on January 1, 2020. Under the deal, Japan will reduce tariffs on beef, pork and some additional agricultural products to the same levels it grants other trading partners in the Trans-pacific Partnership (TPP). The US will provide tariff elimination on 24 tariff lines. The affected agricultural products include perennial plants and cut flowers, persimmons, green tea, chewing gum, and soy sauce. The United States will also reduce or eliminate tariffs on certain industrial goods from Japan such as certain machine tools, fasteners, steam turbines, bicycles, bicycle parts, and musical instruments.
On January 15th, President Trump and Chinese Vice Premier Liu He are scheduled to sign a “phase one” US-China trade deal that requires structural reforms and other changes to China’s economic and trade regime concerning intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange. According to media reports, the 86-page document requires China to buy $200 billion in US goods and at least $40 billion in agricultural products. It also includes a strong dispute resolution system that ensures timely and effective implementation and enforcement. The US will be maintaining 25 percent tariffs on approximately $250 billion of Chinese imports, along with 7.5 percent tariffs on approximately $120 billion of Chinese imports.