U.S. Trade Deficit in Manufactures Up 16% in the Third Quarter, Chinese Surplus Flat
The U.S. global trade deficit in manufactures soared by 16%, or $24 billion, in the third quarter compared with 2014, following the 19% growth in the first half of 2015. This resulted in a trade-related loss of about 150,000 American manufacturing jobs in the third quarter, headed toward more than 600,000 for the calendar year. The Chinese trade surplus leveled off in the third quarter, up only 1%, after rising 14% in the first half of the year. The U.S. bilateral trade deficit with China nevertheless grew by 12%, or $12 billion, in the third quarter, accounting for 64% of the U.S. global deficit, with U.S. imports of manufactures from China 6.4 times larger than U.S. exports to China.
This report presents the U.S. and Chinese figures for trade in manufactures for both the third quarter and the first three quarters of the year. There is also a special section on U.S. trade during the first three quarters of 2015 with the other 11 participants in the Trans-Pacific Partnership trade agreement, with some interesting results: 76% of U.S. manufactured exports to the 11 participants went to NAFTA and only 21% to the 7 Asian participants; and U.S. trade with the 4 Western Hemisphere participants was in surplus by $4 billion compared with a $77 billion deficit with the Asians, of which 78% was with Japan.
Third Quarter Trade in Manufactures
Table 1 presents U.S. and Chinese global exports and imports of manufactures in the third quarters of 2014 and 2015, and the percent change from 2014. U.S. exports in 2015 were $285 billion, down 5% from 2014, imports were $462 billion, or up 2%, and the deficit rose by $24 billion, or 16%. This continues the rapid increase of the deficit, by 19%, during the first half of the year, and equates to a trade-related loss of about 150,000 American manufacturing jobs.
The Chinese trade surplus in the third quarter was flat, up by only 1%, with exports down by 6% and imports down by 12%. This is a major change from the first half of the year when the surplus soared by 14%, and raises questions about the trade balance course ahead. For the year, however, the Chinese surplus will again total about $1 trillion. Also noteworthy, despite the leveling off of the Chinese global surplus in the third quarter, the U.S. bilateral deficit with China continued to grow rapidly, by 12%, with U.S. manufactured imports from China of $134 billion 6.4 times larger than the $21 billion of U.S. exports to China.
First Three Quarters Trade in Manufactures
Table 2 presents U.S. and Chinese global trade for the first three quarters of 2014 and 2015. U.S. exports of $865 billion in 2015 were down by 2% from 2014, imports of $1,343 billion were up by 4%, and the deficit soared by 18% to $478 billion. This equates to a trade-related loss of American manufacturing jobs of 500,000, on track for a loss of more than 600,000 for the year. Moreover, this is the sixth consecutive year of a soaring trade deficit, with a cumulative job loss of 3 million manufacturing jobs, or 30% of the sectoral labor force.
The Chinese surplus was up by $59 billion, or 8%, for the three quarters but, as already noted, this was a combination of rapid 14% growth in the first half of the year down to 1% growth in the third quarter. This table also highlights the extreme contrast in manufactures trade between the two largest exporting nations, and the dramatic change that has taken place since the turn of the century. In 2000, U.S. exports were three times larger than Chinese exports, while now Chinese exports almost double U.S. exports, at $1,588 billion, $723 billion larger than the $865 billion of U.S. exports. And the difference lies in the huge trade imbalances in the opposite direction, totaling $1,240 billion.
U.S. Trade in Manufactures With TPP Participants
A major trade policy decision looms over whether the Congress will approve the recently concluded Trans-Pacific Partnership (TPP) agreement, although there has been relatively little attention given to how important this agreement is for U.S. trade. To this end, Table 3 presents U.S. exports and imports of manufactures, which account for 75% or more of U.S. merchandise exports, for each of the other 11 TPP participants during the first three quarters of 2015. Some striking features distinguish the bilateral trade relationships.
The most striking feature is that 76% of U.S. exports of manufactures to the 11 TPP participants went to NAFTA partners Canada and Mexico ($305 billion out of $401 billion), where the United States already has comprehensive free trade and investment, and this figure rises to 79% if Chile and Peru, also with existing free trade agreements, are added. Thus only 21% of U.S. exports to TPP participants, $84 billion, went to Asia; this amounts to 10% of U.S. global exports, a quite small share.
The share of U.S. imports from Asian participants is somewhat larger, at $161 billion, or 34% of imports from TPP participants, which reflects the second striking feature of these bilateral figures: U.S. trade with the four Western Hemisphere participants is in small surplus, by $4 billion, while trade with the seven Asians is in deficit by $77 billion, of which $60 billion, or 78%, is with Japan.
These trade figures stand in contrast with much of the public debate about the TPP, and deserve some comment. First, the amount of U.S. trade involved, especially in the technology-intensive manufacturing sector, is relatively small, and any initial adverse U.S. trade impact as the agreement is implemented over several years will also likely be quite small, particularly when related to the dominant trade deficit with China presented in Tables 1 and 2. What is more important, and why I personally support the TPP, are the geoeconomic factors involved that will influence the trade strategy of the next president. Two such factors stand out.
The first and more immediate factor is the importance of a free trade agreement with Japan. The on-again, off-again talks about a China–South Korea–Japan tripartite free trade agreement are on again in a serious way after the recent tripartite summit meeting. China is already the number one trading partner for South Korea and Japan, and if this tripartite free trade agreement goes forward and the TPP fails, the United States will be left outside, paying higher, “most-favored-nation” import charges in the Japanese and Chinese markets.
The second factor is how a limited TPP agreement now could be, for the next president, the building block for a broader free trade agreement within the Asia-Pacific region and even beyond. Indonesia has already expressed an interest in joining. The accession of India would be a major step forward and others would likely follow. Such a strategy would require U.S. presidential leadership, with broadly based bipartisan congressional support, which will be difficult to say the least. Certainly the president would have to respond to the 78 senators who pressed for a provision against currency manipulation in the initial TPP. But a TPP agreement could provide the initial steppingstone toward a more balanced, rules-based trade relationship across the Pacific, of economic benefit to the United States.