By Kenneth Rapoza, CPA Industry Analyst
The US needs a "whole-of-government" approach to re-shore production if Americans are ever going to produce what we consume.
The trade deficit hit $63.5 billion in July, its highest monthly total since July 2008 ($67.0 million), though much of the deterioration is due to continued lockdowns and demand suppression caused by the pandemic. June’s trade deficit was $50.7 billion, and in May it was $54.8 billion, the Bureau of Economic Analysis (BEA) said in its trade figures published Thursday.
“This is due to a rise in imports while COVID restrained US exports,” says Jeff Ferry, CPA Chief Economist. “A lot of US facilities were still closed in July and foreign countries’ economies are depressed. But the 12 percent surge in goods imports in the month shows that as the world emerges from COVID, our large trade deficit will continue to shackle US economic growth.”
We exported $115.4 billion worth of goods in July, an improvement over the main coronavirus-inspired lockdown months, but still down from where we were in March when exports were at $127 billion. The last time July export totals were that low was in 2010, when US companies shipped around $108.1 billion worth of goods abroad.
From January to July, the deficit in goods and services was $354.9 billion. Year-to-date, the goods and services deficit increased $6.4 billion, or 1.8 percent, from the same period in 2019. Exports decreased $257.8 billion or 17.5 percent. Imports decreased $251.3 billion or 13.8 percent.
China is a stand-out, but we have some interesting numbers to report from the BEA that we think show tariffs – and the pandemic, of course – have cut into US imports from China. First, July’s trade deficit with China rose to its highest level on the year and hit $31.6 billion. Last month it was $28.3 billion.
But, according to the BEA’s calculations, the year-to-date deficit with China, seasonally adjusted, was $170.5 billion. While that is greater than our deficit with the EU ($98.3 billion) and Mexico ($56.2 billion) combined, it is down from the $212 billion trade deficit registered over the same period last year. Much of that is due to the first quarter cliff, which shows the trade deficit shrank with China to around $60 billion due to COVID-related shutdowns. The second-quarter deficit grew as China went back to work and the US brought in $80.5 billion worth of Made in China goods.
U.S. exports to China were valued at $9.03 billion in July, down from $9.2 billion in June and $9.6 billion in May. China imports rose to $40.6 billion, their highest on the year. Trade with China continues apace.
Meanwhile, our second biggest trade deficit -- the EU – hit $15.7 billion up from $14.0 billion in June and bringing the six-month total to $96.9 billion. July exports rose to $18.4 billion over June exports of $16.2 billion. The year-to-date deficit with the EU is slightly over $98 billion.
And then there is Mexico. The deficit with Mexico remained relatively steady at $10.6 billion for July versus $10 billion in June. Our year-to-date deficit with Mexico, seasonally adjusted, stands at $56.2 billion, not much different from the same period last year when it was at $58 billion.
According to the BEA, manufactured goods exports for July were $75.3 billion, up from $71.4 billion in June. But once again, pandemic or not, the US remains a major importer of manufactured goods. The US exported $543.4 billion in manufactured products and imported $1.12 billion year-to-date. In the year-ago period, exports were $656.8 billion versus imports valued at $1.2 billion.
July soybean exports – a key part of the China phase one trade deal – came in at $1.24 billion, up from $1.17 billion in June. China is the biggest buyer of American soy and year-to-date those numbers are down $2.5 billion to $9.1 billion.
Crude oil remains our biggest commodity export, and it hit $4 billion in July, up from $2.9 billion in June. Crude oil exports have been hammered by demand and falling oil prices, putting year-to-date trade figures at $30.2 billion, which is off by around $5 billion from a year ago. The US was a net importer of crude last month, importing over $5 billion worth of crude in July.
However, when all petroleum products are aggregated, the US ran an $11.8 billion surplus in petroleum products in the first seven months of this year and a $2.1 billion surplus in July alone. Our non-petroleum goods deficit for the July period was $82.2 billion, 13.7 percent worse than June’s $72.3 billion.
Another takeaway from the trade figures today: cars and drugs remain are our biggest imports.
The auto sector is increasingly turning towards China for future growth, and for the US market, we have GM and Ford increasingly shipping jobs to Mexico. Ford’s new EV Mustang, an American icon, will be made in Mexico.
Passenger car imports for new and used cars rose to $11.4 billion in July, up from $7.7 billion in June. Auto parts imports hit $8.4 billion in July from $5.9 billion in June. There is still a decline in the year-to-date figures of both items versus 2019, but that is because of the coronavirus. Automotive was the second biggest imported item in July by value.
And the number one import among consumer products for July was pharmaceuticals. Most of this comes from Europe, followed by India and China. Total value for July was $11.7 billion, seasonally adjusted, versus June’s $13.4 billion.
So far this year, we imported $94.2 billion worth of pharmaceuticals compared to $85.5 billion a year ago, thanks to the public health crisis. Still, even with no pandemic last year, pharmaceutical imports were second after cars and trucks. Last month, the president signed an Executive Order designed to bring more pharmaceutical production to the US.
“This $63.5 billion July deficit, the worst in 12 years, is a reminder that the trade deficit continues to be a huge problem for the US economy,” said CPA CEO Michael Stumo. “It requires nothing less than a whole-of-government strategy to re-shore production. Americans want to go to work to produce what we consume. More aggressive action is needed on currency misalignment, building infrastructure and key industries with iron-clad Buy America mandates, and tariffs to protect important industries for our national strength.”