Great concern was raised last month, when the trade data for June showed a significant worsening of the monthly trade balance, including in manufactured goods. The July figures released today show that June was an aberration, and trade has returned to the trend it has been on for about the last year. The blip in the June figures is clearly seen in the graph below.
Manufactured goods exports rose two percent in July, and stood 21 percent higher than in July 2009. Imports fell 8 percent from their unusual spike in June, and also stood 21 percent higher than last July. As imports are considerably larger than exports, the percentage growth in exports must be more rapid than imports if the deficit is to fall.
Capital goods led in returning to a more normal trend, growing six percent from the unusually low June figures; and capital goods trade returned to a small surplus. The huge deficit in consumer goods trade contracted marginally, but still appears to be on a growing trend. The deficit in automotive trade remained essentially the same as in June.
The overall deficit in July manufactured goods trade was $32 billion, down sharply from June’s unusually high $42 billion. The July deficit, however, is in line with the trend for the last six months or so and confirms the trend of gradual increases – implying an annual deficit of about $400 billion. While huge, that would still be more than $100 billion less than the previous record of over $500 billion in 2006.
With the consumer goods and auto deficits, it is clear that stabilizing or reversing the continued growth in the manufactured goods deficit requires much better performance on the part of U.S. capital goods exports. In part these are growing more slowly than desired because of the slow economies in Europe and Japan. However, with much of the capital goods growth potential being in the rapidly growing developing countries, the absence of additional trade agreements is keeping high trade barriers against U.S. exports and is hampering capital goods sales and the related employment.
The latest data show that U.S. Free Trade Agreement (FTA) partners continue to be the brightest part of the U.S. trade picture, and manufactured goods trade with them is on track to be in surplus for the third year in a row – now looking like a possible $20 billion surplus for this year.
In addition to more market-opening trade agreements, U.S. policies affecting trade need to be altered dramatically, especially in areas such as export controls, export financing, business visas, export promotion and others. The NAM has recommended a specific set of measures necessary to reach the President’s goal of doubling exports in five years. See the NAM’s Export Blueprint at: http://www.nam.org/Issues/Trade/National-Export-Initiative.aspx.
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