A Trade Deal Will Not Make A Dent In Trump’s Trade Deficit

How will a trade deal with China make a dent in the ballooning deficit the U.S. has with the rest of the world, led of course by the world’s No. 2 economy across the Pacific Ocean?

Even if China promised to double its exports of U.S. agricultural commodities, that would just cut $30 billion in a yawning $419 billion trade gap. It’s not even a 10% dent! China is basically importing U.S. raw materials, adding value to those raw materials, and selling them back to the U.S. Who and what is going to change that?

Maybe the U.S. can sell product elsewhere to lower its overall trade deficit?

Oh wait, Europe’s economy is shrinking and few see the richest countries in the world growing over 2% anytime soon. By the way, we have a deficit with Europe.

Japan is a zero growth economy, and we have a steady mid-$60 billion deficit with them, too. Maybe we can sell them more LNG and beef (more commodities).

Speaking of commodities, we’ve got emerging markets. They’re growing. Brazil is inching up and we have a tiny $8 billion surplus with them plus tariffs on their steel. Russia faces sanctions and is not really a market for the U.S. when looked at from a big picture perspective. We don’t usually buy their oil. We are not even a big buyer of their aluminum.

We have a $21 billion deficit with India.

Who does that leave? What major market is increasingly buying Made in the U.S.A. today? Meanwhile, the U.S. economy, the strongest economy in the developed world, keeps buying from abroad. How does 25% tariffs on China change the equation in the trade deficit?

Two years ago we didn’t have 10% tariffs on China. Now we do, and the trade gap widens and widens.

Some U.S. companies feel they cannot compete with China. Not because they are not qualified to do so, but because they are playing baseball and China is playing football. Yet, they are playing the game on the same field.

If Trump thinks the trade deficit is an indicator of his success — or failure — in his trade war with China, then one can imagine he will want to hike tariffs to 25%, seeing how previous hikes did nothing to change the supply chain in favor of American manufacturing.

Tim Brightbell, a partner with trade law firm Wiley Rein in Washington, is representing the American Kitchen Cabinet Alliance in (AKCA) its new trade fight with China. They filed a trade claim with the U.S. International Trade Commission on Wednesday. It’s not the sexiest industry, but it is one every American has a relationship with as every home, even a mobile home, has cabinetry. The 25 member companies in the AKCA say their sales are falling despite more home building and it is because of Chinese imports.

“Chinese imports of kitchen cabinets are a couple billion dollars, but they are up 75% since 2015 and that’s just in two and a half years,” he says. “Our trade deficit goes up because we send them the cheaper wood and they send us the cabinets. We are becoming a low-cost assembly worker to Chinese cabinetry. This harms U.S. industries and you can see this in the trade deficit.”

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced yesterday that the goods and services deficit with U.S. trading partners was $59.8 billion in December, up $9.5 billion from $50.3 billion in November.

December exports were $205.1 billion, $3.9 billion less than November exports. December imports were $264.9 billion, $5.5 billion more than November imports.

Industrial supplies and materials decreased $2.1 billion in December. Crude oil decreased $0.5 billion. Fuel oil decreased $0.4 billion. Capital goods decreased by $1.7 billion. Civilian aircraft decreased $1 billion. Exports of services decreased by around $500 million to $69.5 billion in December.

Meanwhile, American companies were buying $2.7 billion more in capital goods in December alone. Computer accessories and computers increased by $700 million each. Consumer goods increased by $2.4 billion. Household and kitchen appliances imports rose by another $700 million.

For the year, the U.S. sold $74.2 billion worth of industrial supplies and materials. Crude oil increased by sales to $24.6 billion. Capital goods increased by $28.7 billion.

Overall, year-ending exports of goods increased by $118.5 billion to $1,671.8 billion in 2018. Imports of goods doubled that, up $202.2 billion to $2,563.1 billion in 2018.

As a result, the deficit with China increased $43.6 billion to $419.2 billion in 2018. China bought $9.6 billion less American goods for a total of $120.3 billion but the U.S. bought $34 billion more from China, partially due to companies frontrunning tariffs, for a total of $539.5 billion.

Even European Union trade registered a $17.9 billion deficit spike to $169.3 billion in 2018. Exports did well, increasing by $35.4 billion to $318.6 billion but once again we bought much more than they did. U.S. imports of E.U. goods rose $53.3 billion to $487.9 billion.

With China, you can say that the U.S. is simply much richer and so of course we can afford to buy much more. Plus we have over two decades of U.S. multinationals assemblying goods there and exporting back home.

But Europe is rich, and they are rushing to buy American. It’s a slow growing, if not stagnant, market.

China is the growth story. But they’re kind of only shopping here on vacation.

At best, tariffs have become a new source of revenue for the government. They have not nothing to reverse trade trends, judging by the data.

Given that the trade deficit is the Trump administration’s main metric for whether trade policy is fair or not, these figures are likely be spur a more hawkish China policy, Panjiva Research analysts said in a note to clients on Thursday.

Until the U.S. can get China to buy more from the U.S., or make U.S. companies richer for doing business in China at the very least, then the risk of tariff escalation cannot be discounted.

“The (trade) team is still continuing to negotiate because we still have a lot to do,” Commerce Minister Zhong Shan reportedly said during this week’s National People’s Congress. Senior Chinese officials have been taking turns warning that challenges remain in regards to trade, The New York Times reported today from Beijing. The worries over trade policy in Beijing is starting to put in doubt plans for President Xi Jinping to meet with Trump in late March or early April to sign a deal, the Times reported.

Wednesday’s trade balance data has given the Trump administration another reason to push China towards a deal on agricultural tariffs, too.

According to Panjiva Research, to cut the trade deficit with China back to its 2016 level requires a 63.4% increase in U.S. exports from their 2018 level.
Source: Forbes