U.S. Trade Deficit in Manufactures Rose 4% in Q1

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In the first quarter, the U.S. trade deficit in manufactures rose by 4%, or $7 billion, compared with 2015. This is a big improvement from the 14% increase for calendar 2015, but still resulted in a trade-related loss of 50,000 American manufacturing jobs.

As a result of a maintenance issue, the U.S. Department of Commerce has been unable to provide data for bilateral trade by sector and industry, so we cannot determine what has been happening bilaterally. For example, the bilateral deficit with Mexico for total merchandise trade was up 15% in the first quarter, but we don’t know how much of this was manufactures or in which industries. The quarterly report of U.S. and Chinese trade in manufactures explains these developments, including the less than 5% decline in the Chinese trade surplus.

U.S. First Quarter Trade in Manufactures

U.S. global exports of manufactures in the first quarter were $255 billion, down 7% from 2015. Imports of $449 billion were down 3%, resulting in an increase of $7 billion, or 4%, in the trade deficit. This is a large drop from the 14% deficit increase for calendar 2015. Consequently, the trade-related loss of American manufacturing jobs in the first quarter was approximately 50,000. This puts us on track toward a total manufacturing job loss of 200,000 for calendar 2016, compared with 600,000 in 2015 and 400,000 in 2014.

The big question is whether the deficit growth will continue to decline this year as global GDP and trade languishes, including the decline in both U.S. exports and imports of manufactures. The course ahead, however, is highly uncertain because, as in past global GDP slowdowns, other major exporters have turned more mercantilist in their trade strategies to bolster lagging domestic growth through larger trade surpluses, with the United States often the principal “importer of last resort.” For price-sensitive manufactures, this approach can focus on tightly managed and manipulated exchange rates even more than increased import barriers and export subsidies.

In any event, the MAPI Foundation second quarter report should be revealing and newsworthy in view of the trade-related loss of American manufacturing jobs as a major presidential campaign issue.

Bilateral Trade Data for Manufactures Unavailable

Bilateral trade data by sector and industry, including the manufacturing sector, have been unavailable for the past three months as a result of a maintenance issue faced by the Department of Commerce. The department notes that the data are “currently unavailable due to maintenance . . . We are working to have this area back on line as quickly as possible.”

As Commerce works to resolve the sector and industry data issue, bilateral trade data are available only for total merchandise trade, which accounts for about 75% of U.S. exports but a smaller share of imports that varies widely by trading partner. When the data are available, they will be highly relevant. For example, what is the impact of the five trading partners designated in the recent Department of Treasury currency manipulation watch list? For the first quarter of 2016, the U.S. deficit and the change from 2015 for total merchandise trade was:

• China: $78 billion, down 5%
• Japan: $17 billion, down 1%
• Germany: $16 billion, down 7%
• South Korea: $8 billion, up 17%
• Taiwan: $3 billion, down 32%

It will be critical to determine how much of these deficits, particularly for the sharply higher deficit with South Korea, were manufactures, including the industries of import concentration. Also noteworthy is the manufactures share of the $15 billion deficit with Mexico, up 15% from 2015.

Less Than 5% Decline in the Chinese Trade Surplus in Manufactures

In the first quarter, recorded Chinese exports of manufactures were $441 billion, down 10% from 2015. Imports were $231 billion, also down 10%, with a resulting decline of the trade surplus of $13 billion, or 6%. This recorded decline in the surplus, however, was significantly overstated, because of the substantial overvaluation of imports. A best estimate is that the decline in the Chinese surplus in manufactures was down by less than 5% in the first quarter.

Official Chinese trade statistics have significantly understated the decline in imports of manufactures, and thus also understated the trade surplus. Chinese imports from Hong Kong, Shanghai, and other duty-free zones are greatly overvalued on import invoices to circumvent restrictions on the outflow of capital. For example, Chinese imports from Hong Kong in the first quarter of 2016, predominantly manufactures, were $3.8 billion, up 90% from $2.0 billion in 2015, while Chinese global imports of manufactures were down by 10%. Thus the estimate is that the global export surplus was down by less than 5%.