U.S. Trade Deficit Shrinking And It’s All China

JANUARY 7, 2020 — The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $43.1 billion in November, down $3.9 billion from $46.9 billion in October, revised

November exports were $208.6 billion, $1.4 billion more than October exports. November imports were $251.7 billion, $2.5 billion less than October imports.

The November decrease in the goods and services deficit reflected a decrease in the goods deficit of $3.9 billion to $63.9 billion and a decrease in the services surplus of less than $0.1 billion to $20.8 billion.

Year-to-date, the goods and services deficit decreased $3.9 billion, or 0.7 percent, from the same period in 2018. Exports decreased less than $0.1 billion or less than 0.1 percent. Imports decreased $3.9 billion or 0.1 percent. – Census Bureau

2019 Merchandise Trade Deficit (Excludes Services) To Improve By $30 BN

Interesting chart (see below) of the dynamics of the U.S. Merchandise Trade Deficit (excludes services).  Based on our December estimate, which is an extrapolation of the prior three months,  the U.S. Merchandise Trade (goods) deficit will improve by around $30 billion in 2019 from its 2018 level.

All China

All of the improvement, and then some, comes from a $100 billion reduction in the merchandise trade gap with China.   We have also included the U.S, growing trade deficit with Vietnam in the chart below, which mirrors China over the past few years and illustrates the trade diversion caused by the tariff wars.

Trade Diversion

Some believe that supply chains will move en masse out of China to other areas, such as Vietnam.   True on a relatively limited basis but these countries are too small to scale and absorb even a modest move of supply chains out of China.   The data also illustrate that tariffs, when used as a tool for import-substitution — i.e., an attempt to move supply chains back onshore — are relatively ineffective.