Trade

Our Trade Deficit With China Climbs, Exports Drop

Written by SK Ashby

Our global trade deficit slightly declined during the month of April according to the Commerce Department, but our trade deficit with China climbed by nearly 30 percent.

The department's latest report also shows that our trade deficit for the month of March was larger than previously reported.

From Reuters:

The Commerce Department said the trade deficit fell 2.1% to $50.8 billion in April. Data for March was revised up to show the trade gap increasing to $51.9 billion instead of the previously reported $50.0 billion. [...]

The goods trade deficit with China, a focus of President Donald Trump’s “America First” agenda, increased 29.7% to $26.9 billion. Trump in early May escalated the trade fight with China, slapping additional tariffs of up to 25% on $200 billion of Chinese goods, which prompted retaliation by Beijing.

According to the Commerce Department, imports of foreign goods declined (2.5%) by the most since January of 2018 during the month of April, however exports saw their largest drop (3.1%) in over four years.

Goods exports dropped 3.1% to $136.9 billion. The percentage decline was the largest since January 2015. Civilian aircraft exports plunged $2.3 billion. Boeing in March suspended deliveries of its 737 MAX jet after the aircraft was grounded indefinitely following two deadly crashes in five months. Production of the troubled plane has been cut.

There were also decreases in exports of consumer goods and motor vehicles. Exports of soybeans fell in April and further declines are likely following the recent heightening of tensions between Washington and Beijing.

So, what does this all mean?

It means there's not enough domestic demand to make up for the loss of foreign markets. Exports are dropping faster than imports because American consumers cannot replace access to over a billion Chinese people. China has a middle class of developing consumers that is larger (400 million) than the entire population of the United States (327 million).

In theory, a drop in imports could signal that Americans are buying more American-made goods, but that is not what's happening. Sales are simply evaporating as more Americans hold on to their money.

If there were enough domestic demand to make up for the loss of foreign markets, we would not see Trump's bailouts for farmers or mass layoffs in the automobile industry.