Reports from the Economic Front

a blog by Marty Hart-Landsberg

Threatening Trends in US Trade

The US government continues to press ahead negotiating new trade agreements.  And the US trade deficit in goods continues to grow.

According to the US Census Bureau:

For 2015, the goods and services deficit was $531.5 billion, up $23.2 billion or 4.6 percent from 2014. Exports were $2,230.3 billion, down $112.9 billion or 4.8 percent. Imports were $2,761.8 billion, down $89.7 billion or 3.1 percent.

While the trade balance covers both goods and services, the trade in goods dominates; trade in services totaled only 24.1 percent of total U.S. trade in 2015.

The figure below shows the US monthly trade balance.  As we can see monthly trade deficits reached their peak in the period before the start of the Great Recession.  Then, as the economy collapsed, demand for imports rapidly fell.  Over the last few years, the monthly deficit appears quite stable.  Of course, this stability still produces a large annual deficit, which means each year the US adds to its overall foreign debt.  If interest rates do start to climb, foreign debt payments will quickly become substantial.

 

trade deficit

However, this apparent stability hides a new exploding deficit in the trade of non-oil commodities.  Oil prices have been falling for some time.  That decline, along with new production in the US, has produced a significant fall in the value of petroleum imports, as we see below, from a high of $50 billion a month in 2008 down to less than $15 billion a month in 2015.

oil imports

Subtracting the value of oil imports from our goods trade deficit yields a dramatically different picture of US trade dynamics.  The deficit in non-oil goods increased by $108 billion in 2015, from $547.7 billion to $655.9 billion.  As the next two figures show, the non-oil goods deficit is fast approaching record levels, whether measured in dollars or as a percent of GDP.  And this growing deficit means job losses for US workers.

non-oil monthly deficits

 

goods deficit

As Robert Scott explains:

Most U.S. goods trade consists of manufactured products. In 2015, manufacturing constituted 86.9 percent of total U.S. goods trade, and 94.3 percent of total trade in non-oil goods. Because manufacturing is such a large employer, rapidly growing trade deficits in non-oil goods are a threat to future employment in this sector. The growing trade deficit in manufactured products rose to 3.8 percent of GDP, only 0.7 percent (7 tenths) of a percentage point below the maximum reached in 2005. The manufacturing trade deficit also reached a record high of $681 billion in 2015, well in excess of the previous peak $619.7 in 2007. Rapidly growing manufacturing trade deficits were responsible for most, if not all, of the 4.8 million U.S. manufacturing jobs lost between December 2000 and December 2015, and there’s every reason to believe that these job losses will continue if the non-oil trade deficits keeps growing.

And, with the likely approval of new so-called free trade agreements, those deficits are likely to keep growing.

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