Tariffs Help US 2019 Trade Deficit Fall To $617B

February 05, 2020

By Steven L. Byers, PhD and Jeff Ferry

The US trade deficit in goods and services fell for the first time in six years in 2019. That’s according to US Commerce Department figures which showed our trade deficit dropped 1.7 percent to $616.8 billion in 2019.

The drop in the deficit was all the more impressive because the shrinking deficit in 2019 happened in the midst of robust economic growth. Government data released last month showed that real personal consumption expenditure rose by 2.6 percent in 2019. The shrinking trade deficit in the context of increased consumption shows that trade policies have successfully redirected more US consumer demand to domestic producers, strong evidence that strategic use of tariffs can impact the trade deficit without sacrificing economic growth.                                                                                                       

In the important category of goods, the US deficit in goods shrank by 2.4 percent in 2019 to $866.0 billion. Surprisingly, our services surplus also shrank, by 4 percent to $249.2 billion. However, our non-petroleum goods deficit worsened in 2019, expanding by 1.7 percent to $839.2 billion. Driven by expanding domestic production of oil and natural gas, our petroleum deficit improved by 73 percent to just $13.7 billion last year.

The 2019 goods trade deficit with China fell substantially by $73.9 billion, down 17.6 percent to $345.6 billion. US exports to China through December were $106.6 billion and imports were $452.2 billion.

The contraction in our trade deficit in 2019, combined with the steep fall in our deficit with China, shows that US trade policies are working to shrink our deficit and reduce our dependence on the Chinese economy. This is just a start and more needs to be done. There are still too many sectors where we are dependent on imports and especially on China, a country that does not play by the international rules. But the data shows that tariffs work.

The monthly US trade deficit in goods and services for December 2019 increased 11.9 percent over the November figure to $48.9 billion as monthly imports increased more than exports. However, the December deficit was 19.4 percent better than the December 2018 deficit $60.8 billion.

Goods Trade Deficit with EU and Others Worsens

Looking at other major trading partners, our goods trade deficit with the European Union (EU) rose by 5.4 percent in 2019 to $177.9 billion. Surprisingly, our 2019 goods deficit with Germany improved, decreasing 1.4 percent to $67.2 billion.

In response to trade tensions between the world’s two biggest economies, U.S. manufacturers shifted production to countries outside of China. The biggest beneficiaries were other countries in Asia where production costs are low, such as Vietnam, India, Taiwan and Malaysia. The US 2019 goods trade deficit with these countries increased accordingly: with Vietnam it rose 41.3 percent to a record $55.8 billion; with India it increased 11.6 percent to $23.3 billion; with Taiwan it grew 51.6% to $23.1 billion; and with Malaysia our deficit increased 4.2% to $27.5 billion.

Our deficit with Japan widened 2.7 percent to $69.0 billion. The trade deficit with South Korea widened 16.1 percent to $20.6 billion. Our deficit with Canada went up 41.9 percent to $27.0 billion; and, for Mexico it rose 26.2 percent to $101.8 billion, the first time our Mexican deficit has exceeded $100 billion.

Mixed News for Farmers

The phase one agreement with China should provide a boost to farmers. However, the impact of the agreement will likely be offset by the death of up to half the pigs in China due to Asian Swine Flu, and may be further delayed by the coronavirus outbreak in China. Exports of agricultural commodities increased $79 million in December over the revised November figure but are still $2.1 billion lower than a year ago. Within the major agricultural commodities there were winners and losers. Soybean exports increased in December by $67 million and were ahead in 2019 over 2018 exports by $1.5 billion. Exports of wheat were down $45 million from the previous month and rose on a full-year basis to $817 million. Corn exports decreased $8 million in December and were down $4.9 billion in 2019 compared with 2018. Exports of dairy products were down slightly by $3 million in December, up $369 million over the 2018 full-year figure.

For some major categories of imports the 2019 full-year picture is mixed. Iron & steel mill products fell 19.4% to $16.4 billion. Telecommunications equipment imports fell by 15.6 percent to $62.5 billion. Civilian aircraft imports rose 165.6 percent to $14.2 billion and automobile imports rose 1.0 percent to  $175.1 billion. Pharmaceutical imports continue to increase a rapid pace, up 12.1 percent to $149.9 billion.