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U.S. March Trade Deficit Widened as Coronavirus Disruptions Spread

The U.S. trade deficit widened in March as the economic shock related to the global coronavirus pandemic held down both imports and exports.

The deficit rose 11.6% to a seasonally adjusted $44.4 billion in March from $39.8 billion in February, snapping two months of declines, the Commerce Department said Tuesday. Imports declined 6.2% to $232.2 billion in March, the lowest figure since October 2016. Exports were down 9.6% to $187.7 billion, lowest since November 2016.

The March trade numbers are likely to be the beginning of a sustained fall in global trade, said Brad Setser, a senior fellow at the Council on Foreign Relations. The coming months will probably show a continuing decline in U.S. imports and exports, he said.

“It’s safe to project that April will see a much bigger fall and there’s not likely to be a significant recovery in May,” Mr. Setser said.

Several factors have depressed global trade in recent months. First, the emergence of the new coronavirus in China caused factories there to shut down, disrupting supply chains world-wide. Then the virus spread world-wide, prompting many businesses to close operations, which caused job losses, and many governments to issue stay-at-home orders, which held down consumer spending. The lockdowns have likely produced a global recession, further reducing demand.

The report offered an early glimpse at the effect of those lockdowns on travel and trade. Travel into the U.S. — counted as an export in trade statistics — was down a stunning 45.3% in March from the previous month. Overall services exports fell 15.3% on the month to $59.6 billion, the lowest since December 2013.

The collapse in oil prices also contributed to slowing trade volumes in March. Imports of petroleum products were down 21.9% while exports fell 13.2%.

Exports of cars and car parts were down 17.9%, reflecting both closed factories in the U.S. and a drop in global demand. Imports were down 8.9% from the previous month.

The International Monetary Fund predicted last month that global trade would fall 11% this year. The World Trade Organization projects an even steeper decline of between 13% and 32%, affecting all global regions but particularly Asia and North America.

A decline of such magnitude would be steeper than during the global financial crisis of 2008-09, the WTO said. After that crisis, trade never returned to its previous level, the WTO said. The same could happen now if the coronavirus shock ends up being prolonged.

U.S. economic data released so far all suggest that trade flows will slow considerably in the months ahead.

The department reported Thursday that consumer spending fell 7.5% in March, the sharpest one-month drop on record. On Friday, a gauge of manufacturing showed factory activity contracted in April at the sharpest pace since the last recession.

Overall economic output fell at a seasonally adjusted annual rate of 4.8% in the first quarter, the department said last week.

Karl Glassman, the chief executive officer of Leggett & Platt, Inc., which makes furniture parts, said Tuesday that the collapse in global demand had forced the company to temporarily lay off employees and cut costs.

“So much of the demand that we experience is based on consumer confidence, and we have a consumer that doesn’t know, frankly, what to think,” he said. “It always feels like we’re one day away from bad news.”

If U.S. exports continue to decline faster than imports, it would widen the trade deficit, which had been shrinking over the past year amid a slowing global economy and the Trump administration’s tariffs on China.

The two countries struck a Phase One trade agreement in January, which committed China to increase its purchase of U.S. goods by $77 billion in 2020 and by $123 billion in 2021.

At the time, analysts said it would be difficult for Chinese companies to boost imports to that extent. Now, the economic fallout of the pandemic makes it even less likely the Chinese private sector will meet those targets.

Over the first quarter of the year, exports to China are down 15.4% from the first quarter of 2019. Imports are down 28.4%.

Meeting the terms of the deal could now rely on the state’s willingness to step in and make the purchases instead of the private sector, said Mary Lovely, an economist at Syracuse University.

“There are going to be a lot of businesses in China that are not going to survive this,” she said, referring to the lockdowns associated with the coronavirus. “They’re definitely going to have trouble.”

Global trade will rebound once the pandemic is contained, Mr. Setser said, but it might not return to the same level as before. The shortages of medical supplies that the U.S. and other countries experienced due to the supply-chain shocks could prompt efforts to be more self-sufficient, he said. That could reduce some trade flows in the long run, he said.
Source: Dow Jones

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