Record exports trimmed the U.S. trade deficit in March, the first drop in seven months in a massive gap that President Donald Trump is determined to shrink with an aggressive America first policy.Guess that explains why the BEA says trade wasn’t much of a drag on 1st Quarter despite the large jumps in the trade deficit in January and February – they had this report ready to back them up.
The Commerce Department says the trade deficit — the difference between what America sells and what it buys in foreign markets — slid to $49 billion, down from $57.7 billion in February and lowest since September.
Trump has vowed to bring down America's massive deficits, which he blames on bad trade agreements and abusive practices by U.S. trading partners.
Exports rose in March to a record $208.5 billion, led by shipments of civilian aircraft and soybeans. Imports slipped 1.8 percent to $257.5 billion.
If you go further into the March trade report, you see a few more explanations for our sudden drop in the trade deficit. And 38.5% of that decline is due to a big drop in our goods deficit with China.
Exports of goods to China UP $2.576 BILLION vs Feb (+26.2%)
Imports of goods DOWN $811 million
Which adds up to a $3.4 billion decrease in trade balance of goods with China for March.
Interestingly, the same report says the “seasonally adjusted by geography” deficit with China actually went up - by $707 million to $35.4 billion. So stay tuned for what that picture looks like in the April month.
There also appeared to be an effort to get ahead of President Trump’s March announcement of tariffs on steel, and potential countermeasures by China against American agricultural products (which became reality at the start of April).
Take a look at this list of stats from March’s trade report, where the products most likely to affected by these tariffs had major changes in the amount of overseas shipments.
Soybeans exports UP $517 million vs February (+28.0%)
Corn exports UP $308 million (+39.8%). Still down $477 million for the year, oddly.
Iron and steel mill product imports UP $279 million (+18.4%)
Steelmaking materials UP $101 million (+13.6%)
Iron and Steel, advanced imports down $13 million for month, but UP $465 million (+18.9%) for 1st 3 months.
If there is an accelerated amount of shipments happening to get those products overseas before the tariffs hit, then might we be seeing a slowdown coming in those parts of the economy in the near future as things level out? And would that lead to even more falling prices for farm products in America, in a time when many farmers are struggling as it is?
Another item to keep an eye on is the strengthening dollar, possibly related to the rising interest rates of recent months and expectations of further rate hikes by the Federal Reserve.
While a strong dollar sounds good, it's bad when it comes to trying to lower the trade deficit, because exports become more expensive for people in foreign nations to buy, and imports are cheaper. A rising dollar in 2015 (and continued strength the next year) likely contributed to a loss in manufacturing jobs in the US for 2016, for example, even while it likely held inflation down. Manufacturing employment and exports have bounced back since 2016 (although imports have risen faster), but the 6.6% increase in exports over the last 5 months measured seems unlikely to continue to increase by that strong pace in the near future due to the headwinds of tariffs and a stronger dollar.
And given other events going on regarding trade, it's not a good time to have that extra concern of a US exports being endangered due to a higher prices in foreign countries via dollar appreciation and tariffs. Of course, all of this analysis could be thrown out the window by the time the weekend finishes and Trump's appointees head back to the States after meeting with the Chinese.