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The U.S. foreign trade deficit worsened in March but that may be a good thing

05/10/2012 by Alex Carrick, RCD Canadian Chief Economist

U.S. goods and services imports rose 5.2% in March while exports increased by a more restrained 2.9%, causing the trade deficit to deteriorate further to -$622 billion annualized, according to a joint press release from the Census Bureau and the Bureau of Economic Analysis.

Until the U.S. becomes more self-sufficient in oil, an improvement in the economy will almost assuredly lead to a worsening in the trade balance.

Therefore, the latest more-negative number is not necessarily a bad thing.

U.S. consumer sentiment has become increasingly optimistic, translating into more plentiful everyday purchases that include a large import component.

For example, year-to-date imports of clothing in March were valued at $19.7 billion. By way of comparison, exports in the same product category were only $854 million.

Some of the other commodity categories in which the U.S. runs a huge trade deficit include: TVs, VCRs, etc.; toys, games and sporting goods; automated data processing equipment and office machines; electrical machinery; power generating machines; and motor vehicles.

Plus, of course, there is the category recording the biggest shortfall of all – crude oil. In the first quarter of this year, America imported $81.6 billion worth of oil while exporting less than a billion dollars.

Oil imports were 8.6% higher in January to March of this year than during the same period last year.

As for petroleum preparations (e.g., gasoline), exports were about in balance with imports.

What about the other major fossil fuel? Natural gas has been telling quite a different story.

U.S. natural gas imports have been 38% lower year to date.

Two factors have come into play: 1) a rising domestic inventory from tapping previously inaccessible deposits in shale rock; and 2) the warmer-than-usual weather in January and February that lowered heating demand.

The make-up of U.S. foreign trade in the auto sector is very interesting.

By a factor of two-to-one, Canada remains the largest customer for U.S. motor vehicle and parts exports. Mexico is in second place.

But when it comes to imports, the positions of those two countries are reversed.

Through March, the dollar volume of auto imports into the U.S. from Mexico was 12% higher than from Canada.

Furthermore, Japan almost exactly matched Canada as a source of U.S. motor vehicle and parts imports.

But Japan accepts a very low volume of auto sector products from the U.S. into its domestic market. The same goes for two other countries. Both Germany and South Korea make large auto sales into the U.S. market, but take back very little in return.

With respect to the latter country, the recent free trade agreement is supposed to help rectify the situation somewhat.

The U.S. does run large trade surpluses in several notable product categories. This year, these have included: airplanes, engines and parts; nonmonetary gold; soybeans; and corn.

But 70% of gross domestic product is grounded in consumer spending. Therefore, the consumer largely determines the composition of foreign trade. And the “man in the street” has been feeling more confident of late.

The improvement in the jobs picture and the gradual decline in the unemployment rate have been strong positive influences.

Further reinforcement for the upbeat message has come from the two latest initial jobless claims reports. After rising back to nearly 400,000 for three weeks – indicating a pause in the forward progress of the economy – the figure has returned closer to 360,000.

At that level, a further pickup in employment prospects is at hand.

U.S. foreign trade: goods and services balance
U.S. foreign trade: goods and services balance
Based on seasonally adjusted monthly figures, projected at an annual rate.
Analysis of the U.S. foreign trade position usually focuses on goods and services exports minus goods and services imports.
Data source: U.S. Bureau of the Census/Chart: Reed Construction Data - CanaData.
U.S. goods trade deficit with major countries and areas – March 2012
    Annualized Per cent
of Total
      Annualized Per cent
of Total
    Figure U.S. Goods       Figure U.S. Goods
    (U.S. $ billions) Trade Deficit       (U.S. $ billions) Trade Deficit
Canada 1 year ago -31.7 4.9%   Euro Area 1 year ago -97.8 15.0%
  3 months ago -46.5 6.7%     3 months ago -102.2 14.8%
  Latest month  -36.7 5.3%     Latest month  -105.7 15.3%
Mexico 1 year ago -74.0 11.4%   Indonesia* 1 year ago -12.4 1.9%
  3 months ago -59.4 8.6%     3 months ago -7.9 1.1%
  Latest month  -73.7 10.7%     Latest month  -9.6 1.4%
Germany 1 year ago -54.7 8.4%   OPEC 1 year ago -129.7 19.9%
  3 months ago -58.0 8.4%   Nations 3 months ago -109.2 15.8%
  Latest month  -66.1 9.6%     Latest month  -109.4 15.9%
China 1 year ago -217.0 33.3%   Nigeria 1 year ago -29.8 4.6%
  3 months ago -277.6 40.2%   (OPEC 3 months ago -16.0 2.3%
  Latest month  -260.1 37.7%   member) Latest month  -12.0 1.7%
Japan 1 year ago -72.7 11.2%   Saudi Arabia 1 year ago -29.9 4.6%
  3 months ago -78.5 11.4%   (OPEC 3 months ago -43.2 6.2%
  Latest month  -85.8 12.4%   member) Latest month  -39.0 5.7%
India 1 year ago -17.4 2.7%   Venezuela 1 year ago -35.8 5.5%
  3 months ago -7.7 1.1%   (OPEC 3 months ago -24.6 3.6%
  Latest month  -19.8 2.9%   member) Latest month  -32.8 4.8%
*Indonesia has a large trade surplus with the U.S. but it is mainly in products other than oil. In fact, the country has become a net importer of oil.
The five major suppliers of crude oil to the United States are Canada, Saudi Arabia, Mexico, Venezuela and Nigeria.
Data source: U.S. Census Bureau (Department of Commerce) (based on not seasonally adjusted current dollar monthly figures).
Table: Reed Construction Data - CanaData.


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