Trade

Trade Deficit Soars By Nearly 53 Percent

JM Ashby
Written by JM Ashby

We already know that our trade deficit in goods soared in the second quarter of the year thanks, in part, to stimulus measures giving Americans money to spend on household goods. That's why the likes of Amazon and Walmart hired hundreds of thousands of people even during the worst stretch of the pandemic; to deliver all those goods from China.

But our trade deficit including services, which we usually run a surplus in, also soared to the highest level since 2008 according to a new report from the Commerce Department.

The deficit soared by significantly more than economists predicted, but numbers for the first quarter of the year -- before we shut down any part of the economy -- were also revised to show a larger deficit than previously reported.

Imports declined as well, but nowhere near the same amount that exports declined.

WASHINGTON (Reuters) - The U.S. current account deficit soared to its highest level in nearly 12 years in the second quarter as the COVID-19 pandemic weighed on the export of goods and services, offsetting a shrinking import bill.

The Commerce Department said on Friday the current account deficit, which measures the flow of goods, services and investments into and out of the country, jumped 52.9% to $170.5 billion last quarter. That was the biggest gap since the third quarter of 2008 when the economy was working its way through the Great Recession.

Data for the first quarter was revised to show a $111.5 billion shortfall, instead of $104.2 billion as previously reported. Economists polled by Reuters had forecast the current account gap increasing to $157.9 billion in the second quarter.

To some degree this is all expected, right? The coronavirus pandemic hit consumer demand everywhere in the world, not just the United States, but these numbers show just how deep of a hole we'll have to climb out of and they highlight how meaningless Trump's negligible trade deals are.

Data for the first quarter being revised to show an even larger deficit in both goods and services is a reflection that Trump's recession began in February before even a single business was shut down for the pandemic. It's also a reflection that "phase one" of his "biggest and greatest deal" with China was never going to move the needle in a significant way.

Senate Democrats unveiled a proposal today that calls for applying more pressure to China in matters global trade in response to their abuse of human rights, but one thing it does not do is call for continuing Trump's trade war for vanity's sake. It doesn't call for waging a trade war based on unsubstantiated economic wharrgarbl.

To the frank, the Dem proposal includes more tough talk than it actually includes tough action, but that's fine. That's how diplomacy begins and the proposal includes an explicit call to reengage and revitalize diplomatic institutions like the World Health Organization (WHO) and the World Trade Organization (WTO). It's unlikely they would unveil their proposal now without running it by the Biden campaign first and with that mind I think we can say Biden would have the political support in Congress to end Trump's trade war but replace it with something else more comprehensive.

The Democratic proposal and Biden's own campaign trail rhetoric are probably a preview of what we can expect to see next year as the hypothetical Biden administration seeks to restart our relations with most of the world. We're not going to completely back down from confronting China, but whatever we do will be prudent rather than belligerent like it is under Trump.

  • muselet

    It didn’t have to be this way.

    A competent response to a deadly pandemic, sensible negotiation with China, and respect—even if through gritted teeth—for the norms and rules of international trade would have made the economic downturn shorter, if not necessarily shallower. The US would have retained a lot of its influence in the world, too.

    The economy would still have contracted sharply, people would still have lost their jobs, and people would still have been sickened and killed by Covid-19, but things might be turning around by now. There wouldn’t be a vaccine, of course, so social distancing and maybe masks would still be a feature of everyday life, but the rates of new infections and deaths would be much lower, which in turn would allow the economy to sputter back to life.

    Maybe the Biden administration and a D-controlled Congress *crosses fingers* can turn things around, but they’ll be starting from a more difficult point than necessary.

    –alopecia