US Trade Deficit Up 10% Over 2016, On Track for $550B This Year

August 07, 2017

By Jeff Ferry, CPA Research Director 

New trade figures from the Department of Commerce show the US international trade picture continues to deteriorate. 

The US trade deficit in June hit $43.6 billion, almost the same as the year-ago June level of $43.8 billion. But for the first half of this year, at $276.6 billion, the trade deficit is 10.7% worse than the year-ago figure. We are now on track for an annual trade deficit this year of some $550 billion, which would be the highest deficit since 2008. That’s some 2.8% of our GDP, a substantial contractionary force in the economy. If that spending were going towards US goods and services instead of foreign goods and services, it would create more revenue, more jobs, more profit, and more investment inside the US instead of overseas. 

Non-Petroleum Goods Trade

The US non-petroleum goods deficit hit a new high in the first half of this year of $354.6 billion, putting the nation on track for a record $700 billion non-petroleum deficit for the year as a whole (Figure 1 below). While the petroleum balance has improved as a result of fast-growing production and exports of oil and gas (thanks to the shale revolution), the rise in the non-petroleum balance is bad news for the US economy because it indicates growing net imports of manufactured goods and commodities, which create more jobs per dollar than the petroleum sector. While the Trump administration has succeeded in making trade a hot topic for political discussion in Washington and globally, we have yet to see concrete action to reduce the huge US trade deficit and support US manufacturing in its battle against foreign imports, many of them supported by open or clandestine subsidies from foreign governments. 

 In the first six months of 2017, the US goods trade deficit with China worsened by 6% to reach $171 billion. China continues to account for between 40% and 50% of our total goods trade deficit. The biggest driver of the increase in our bilateral deficit with China was the computer and electronic products sector, where imports rose 35% in the first half of the year. Offsetting the rise in imports was strong growth of 21% in US exports of transportation equipment to China and 9.9% growth in the export of agricultural products.  However, our goods trade with China continues to be badly out of balance, with our imports reaching a value nearly four times the value of our exports. Trade with China is a hot topic politically, with the Trump administration looking into the possibility of a Section 301 investigation of China’s trade practices, especially in the area of intellectual property protection and technology transfer.

Advanced Technology Deficit Worsens, Driven by China

The June data also showed that our trade deficit for advanced technology products (ATP) reached $43.4 billion for the first half of this year. That’s 33.4% worse than in the year-ago first half. Advanced technology products include many product segments considered to be “industries of the future” so they are important for future prosperity.  ATP includes computer and communications products, aerospace, weapons, biotech, and nuclear technology. Our bilateral ATP deficit with China reached $57.8 billion in the first half of the year, up 51% on the year-ago period, according to the US-China Economic Security Commission, a bipartisan body that reports to the US Congress.  According to the Commission analysis of Census figures, our bilateral ATP deficit with China worsened due to a surge in computer and communications exports from China to the US at the same time that US aerospace exports to China fell by 21% or $3.7 billion. Typically, imports of computer and communications equipment are stronger in the second half of the year than the first, so the US advanced technology trade deficit is likely to rise further in the second half of this year. 


Figure 1: US non-petroleum goods deficit (red line) reaching new lows. With thanks to www.calculatedriskblog.com for the graph.

Balanced Trade

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  • Bruce Bishop
    Everything that is manufactured will eventually be manufactured in China at one-third to one-tenth the cost of U.S. manufacturing. China uses essentially slave labor, and has none of the compliance costs because they have zero regard for human rights, worker safety, or the environment.

    The Foxconn workers who built your iPhone work 16 hour days, six days per week, for about $240 per month. Do the math. They live in worker dorms adjacent to the factory, with suicide nets under the windows. Their room and board takes up most of their wages. They are not going to become “consumers” of U.S. made products as we were promised.

    The “experts” have argued that labor is only 15% of product cost, and therefore China’s cost advantage is minimal. The fact is, all of the cost factors are cheaper in China, because material, overhead, energy, transportation and construction, are all made up mostly of cheap labor and cheap salaries. We simply cannot compete with China on cost.

    Communist China is a criminal enterprise. We should not be doing business with China at all. They are stealing our technology, our intellectual property, and our jobs. They are draining our wealth, not for the benefit of their citizens, but to build up their military and to enrich the honchos of the Chinese Communist Party.

    Read “Death by China,” by Peter Navarro and Greg Autry. Peter Navarro is President Trump’s trade guru. This excellent book has been made into a documentary, available free on Youtube. Here is a link to the trailer for the video: https://www.youtube.com/watch?v=p9pXRSzFcKg&t=11s