Record Deficit Gives President Trump Reason to Act, Against China — Panjiva
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Record Deficit Gives President Trump Reason to Act, Against China

China 1793 Tariffs 1205 Trade Balance 668 U.S. 3362

The U.S. trade deficit widened to $53.1 billion in December vs. $44.6 billion a year earlier according to official figures. That was the largest deficit since October 2008, and wider than the $52.1 billion expected by economists according to Bloomberg. That in turn followed a wider-than-expected goods deficit, as outlined in Panjiva research of January 26, and a services surplus that was unchanged vs. the prior year. Continued strength in both consumer sentiment and business expectations, combined with low savings rates make such an expansion inevitable.

HIGHER ‘COS EVERYONE’S A BUYER

Chart segments drivers of change in the U.S. goods-and-services deficit. Calculations based on U.S. Census Bureau data. Source: Panjiva

Part of the challenge has been that imports of services have grown more quickly than exports, with a 6.3% increase in imports vs. a 4.3% rise in exports. There is not much that can be done about this from a policy perspective, however, as most of the increase has been in travel, transport and intellectual property services. All three are tied to a booming consumer economy and are difficult to restrict using trade policy.

MAKE AMERICAN STAYCATIONS GREAT AGAIN, FOR THE SAKE OF THE DEFICIT

Chart segments drivers of change in U.S. services imports by product category. Calculations based on U.S. Census Bureau data. Source: Panjiva

What can be controlled via trade policy, however, is the import of merchandise from other countries. In that regard President Trump has plenty of room for action, which these figures may spur, after enacting 26 items of trade policy since inauguration and at least six areas where action can be taken immediately excluding NAFTA negotiations including: section 232 reviews of metals; section 301 review of Chinese IP practices; the KORUS trade deal; Japanese trade relations; the defense procurement review; and self-initiated trade cases.

This data supports action regarding China more than any other. The U.S. trade-in-goods deficit with China reached $30.8 billion in December after rising 11.2% on a year earlier, bringing the 12 month total to a new record of $375.3 billion. That was equivalent to 47.1% of the entire U.S. trade deficit, followed by 19.0% from the EU, 11.1% from NAFTA and 8.6% from Japan.

DEFICIT GROWTH IS ALL ABOUT CHINA (AND A BIT ABOUT NAFTA)

Chart segments U.S. trade-in-goods deficit by country. Calculations based on U.S. Census Bureau data. Source: Panjiva

The irony in the figures is that U.S. exports to China climbed 12.8% in 2017, and set a new record in December of $13.7 billion. However, with imports equivalent to 3.9x exports the 9.3% rise in imports was enough to push the deficit up.

A further opening up of trade with China could help boost the export figure. However, that process has run into trouble recently with an agreed increase in soybean imports hitting regulatory problems, and a newly launched Chinese investigation of sorghum imports.

That makes a restriction of imports via tariffs, particularly in consumer goods including electronics, the most direct way that the Trump administration can restrain the newly resurgent deficit in short order.

DOUBLED EXPORTS, HALVED IMPORTS NEEDED TO MAKE TRADE WITH CHINA “FAIR”

Chart segments U.S. trade-in-goods deficit by country. Calculations based on U.S. Census Bureau data. Source: Panjiva

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