Overall Deficit Rises 12% Due to EU, Mexico, & Canada
By Steven L. Byers, PhD and Jeff Ferry
As the US went into a self-imposed quarantine, US trade volume collapsed, with exports down 11 percent from a year ago and imports down 12 percent.
The US goods trade deficit with China fell to $11.8 billion, its lowest level in 16 years and lower than our deficit with the European Union for the first time since 2003.
The US trade deficit in goods and services for March 2020 increased 11.6 percent to $44.4 billion (seasonally adjusted) as monthly exports decreased more than imports. The March increase was due to a $4.6 billion increase in the goods deficit to $65.6 billion, and a slight fall in the services surplus of $0.1 billion, to $21.2 billion. Year-over-year, the goods and services deficit decreased $28.1 billion, or 17.8 percent, from March 2019. Exports decreased $21.7 billion or 3.5 percent. Imports decreased $49.7 billion or 6.4 percent.
Trade with China was disrupted in March when China was in the early stages of slowly reopening its economy after the coronavirus pandemic eased, while the US was in the initial stages of closing down its economy after the number of coronavirus cases began to ramp up. The coronavirus took a large toll on both China’s and America’s ability to export goods, and the demand for imported goods fell as a large segment of the population was forced to self-quarantine. As a result, the US goods trade deficit (seasonally adjusted) with China fell to $11.8 billion, down by $4.2 billion from the February figure. The March figure was the lowest bilateral deficit with China since 2004. Compared with March 2019, US exports to China fell 24 percent to $8.0 billion. Simultaneously, US imports from China fell 36 percent to $19.8 billion as China’s manufacturing capacity was severely impaired by the pandemic.
The US goods trade deficit with Mexico was $10.1 billion, 5.8 percent larger than the year-earlier figure of $9.5 billion. The goods trade deficit with Canada increased by 23 percent to $1.6 billion. With regards to other major trading partners, the monthly goods trade deficit with the European Union (EU) was $17.7 billion, 25 percent worse than the year-earlier figure of $14.2 billion.
The trade deficit continues to be propelled by the high value of the US dollar. The already overvalued greenback shot up some 6.8 percent in the month of March, as concern over a pandemic-inspired global recession drove a flight out of emerging market assets and into dollar-denominated securities. With the dollar still more than 6 percent above the level at which it started the year, the consequences for US international trade could be severe.
Exports of agricultural commodities in March were $11.9 billion, up 5.1 percent from the February level. Within the major agricultural commodities there were winners and losers. Soybean exports came in at $1.2 billion, up 20 percent from the February level. Exports of wheat were down 39 percent to $419 million. Corn exports decreased 7.5 percent to $789 million. Dairy product exports increased 10 percent to $495 million, and Meat and Poultry exports fell 2.8 percent to $1.9 billion.
For other major categories of imports, the year-on-year picture was mixed. Civilian aircraft imports rose by $319 million to $1.38 billion in the month. Telecom equipment imports rose $141 million to $4.6 billion. Computer imports rose sharply, by 16 percent, to $5.9 billion. However, automotive sector imports fell sharply, by 9 percent, to $27.8 billion.
Tensions with China Ramp Up
As relations with China deteriorate over Beijing’s handling of the coronavirus, President Trump has threatened to cancel the first phase of the US-China trade deal if Beijing misses import targets agreed before the pandemic hit and could pursue more punitive tariffs.
Trump said he would cancel the agreement struck after lengthy negotiations if China failed to buy an additional $200 billion of American goods and services over the next two years as tensions rise about the origins of the coronavirus outbreak. He said: “If they don't buy, we'll terminate the deal. Very simple.” However, the phase one agreement does contain a clause that allows for a natural disaster to change the terms of the deal and instructs the two parties to consult with each other.
USMCA Goes into Effect July 1, UK Trade Talks Start Today
The United States has cleared the way for its long-awaited trade agreement with Canada and Mexico to go into effect July 1. The US notified Canada and Mexico that it has completed work called for in the trade agreement, steps that had previously been completed earlier in the month by their two trading partners.
U.S. Trade Representative Robert Lighthizer also informed Congress that all three countries are now ready to proceed on the next step: forging so-called "uniform regulations" that will govern how the language of the deal is to be interpreted.
Britain and the US are set to begin negotiations on an "ambitious" post-Brexit free trade agreement. Lighthizer and Britain’s Trade Secretary Liz Truss will open the talks by videoconference today. The first round of negotiations are expected to continue for two weeks, with around 100 negotiators on each side taking part.