Trade Deficit Deteriorates to $750 Billion in February
Alex Carrick
In February 2008, the U.S. trade deficit in goods and services increased again to $748 billion, up from $708 billion the month before. The U.S. traditionally runs a surplus in services, which means that the deficit in goods must be even higher than the attention-grabbing number in the headline. In fact, the trade deficit in goods is now flirting with the $900 billion dollar mark.
The decline in value of the U.S. dollar and the slowdown in the U.S. economy are supposed to help rectify deficits on the trade front. However, those deficits are proving more intractable than many had pre-supposed. Reliance on foreign energy is a problem with no short-term solution. And purchases of low-cost foreign consumer goods are not just a spur-of-the-moment event. For many families, the low prices at Wal-Mart and its competitors are the only means to stretch tight family budgets to cover essentials.
The figures in the accompanying table only show the deficit positions (i.e., the balance of imports minus exports) with specific nations. Clearly, the largest deficit is with China, at over $220 billion annualized. However, there are some interesting statistics that lie behind the summary numbers.
Canada Remains the Largest Trading Partner of the U.S.
For example, while the media is focused on the U.S. trade deficit with China, what is often not recognized is that Canada remains the United States’ largest trading partner. The following rankings are based on the latest trade numbers (on a Census basis) from February 2008.
Let’s begin by looking at U.S. imports. Canada ($27.7 billion in the latest month) is first among all foreign nations as a supplier of goods to the U.S. economy, although China ($24.1 billion) is not that far behind. Mexico ($17.7) is a relatively distant third. After that, comes Japan ($12.5), followed by Germany ($8.0).
As for U.S. exports, Canada ($21.2 billion in February) is by far the largest foreign market, with Mexico ($12.2 billion) running a distant second, at only a little more than half of what is shipped north of the border. The next closest markets by dollar volume are China ($5.8), Japan ($5.7), the United Kingdom ($4.8) and Germany ($4.6).
Where the U.S. Loses and Where it Wins Again based on February trade data, the U.S. has its biggest trade deficits in low-cost consumer and business products, in energy and in the auto sector. The specific product areas are: (1) office equipment; (2) clothing, furniture, bedding, TVs, VCRs, toys and games; (3) crude oil, natural gas and petroleum products; and (4) vehicles.
Where the U.S. has a trade advantage is in some proprietary knowledge-based machinery and equipment and in some natural resources. With respect to specific products, the U.S. has large surpluses in: (1) airplanes and airplane parts; (2) some agricultural products (e.g., corn and soybeans) and some metals (e.g. nonmonetary gold); and (3) specialized industrial machinery.
Trade Deficit Complicates Life for the Fed
The continuing huge trade deficit complicates life for the Federal Reserve Board. To be given a free hand in cutting interest rates to stimulate the economy, the Fed would dearly love to see progress in reducing the trade deficit and lowering inflation. So far, these ideal circumstances are not falling into place.
