January 7, 2020

The trade deficit for November narrowed by $3.9 billion to $43.1 billion after having narrowed by $4.2 billion in October.  The $887 billion trade deficit in goods for 2018 was a record high level.  It should narrow slightly in 2019.

The U.S. and China are on the cusp of signing a trade agreement.  It will not solve all the problems between the two countries but at least the steady escalation of tariffs that took place last year has come to a halt.  The trade war has resulted in slower growth everywhere, but particularly in China, Trump has been trying to get the Chinese to play by the same rules as other country.  He wants them to stop stealing our technology, stop forcing U.S. companies to share their technology to do business in China, and quit subsidizing their export industries.  The recent trade agreement does a little bit to help in this regard, but it remains to be seen how much the Chinese actually change their way of doing business because this is the way the Chinese have been doing business forever.

As the trade war got started in 2018 investors around the globe tried to figure out which countries might fare best in a trade war.  Answer:  U.S.  Why?  Because trade is only 10% of the U.S. economy.  It is about 50% of everybody else’s economy.    Everybody loses in a trade war, but the U.S. may lose far less than others.

As other countries began to believe that the U.S. could withstand a trade war better than anybody else,  foreign investors flooded into the U.S. stock and bond markets.  The dollar soared.  That money would be used to create new businesses in the U.S., hire more American workers, and boost our stock and bond markets.  Elsewhere, the opposite was occurring.in 2018.

This has been a painful and perhaps scary process to see in action but, in the end, we may end up with both freer and fairer trade than we had initially.

Increasing energy production in the U.S. is having a significant impact on our trade deficit in oil.  Since 2007 oil exports have surged from $3.0 billion to $15.0 billion, while oil imports have fallen from $24.0 billion to $14.0 billion. As a result, the trade deficit in oil has been cut by about $22.0 billion from a deficit of $21.0 billion to a surplus of $1.0 billion.   Beginning in September of last year– for the first time ever — the U.S. has has a trade surplus in oil.  That means that its reliance on Middle East oil has been greatly diminished.

Frequently exports and imports can be shifted around by price changes rather than the volume of exports and imports.  Thus, what is really important is the trade deficit in real terms because that is what goes into the GDP data.  The “real” trade deficit narrowed by $3.7 billion in November to $75.3 billion after having narrowed by $4.1 billion in October.

As noted earlier, Increasing energy production in the U.S. is having a significant impact on our trade balance in oil.  For the first time in history the U.S. has had a trade surplus in oil since September of last year.

Oil oil exports in real terms, however, still has a deficit of $4.0 billion but in 2007  . As a result, the real trade deficit in oil has been cut by about $35.0 billion or 88% in the past several years and is the smallest since the early 1990’s.

.In March of 2018 the U.S. surpassed Saudi Arabia and Russia  and become the world’s biggest producer of oil.  It has also become a net exporter of oil.  Very impressive!

The non-oil trade gap has shrunk by about $3.0 billion  in the past year to about $68.0 billion as non-oil exports have fallen 0.6% while non-oil imports have fallen by 3.4%.

.Stephen Slifer


Charleston, SC