One result of the U.S.-China trade war has been an increase in U.S. imports of computer parts, ... [+]
Since President Trump entered office, U.S. imports from China have fallen $67.55 billion, 10 times more than U.S. exports to the world’s second-largest economy, thereby lessening the U.S. trade deficit.
The impact is pronounced. At the time Trump entered the White House, the U.S. trade deficit was more than five times greater than it was with any other country. Today, it is less than three times greater.
Nevertheless, almost three years into the U.S.-China trade war, three of the four largest U.S. trade deficits in history will have occurred during President Trump’s tenure.
That will include the 2020 trade deficit, statistics for which will be released in about three weeks. That deficit will almost certainly be the largest in U.S. history and likely approach $900 billion, even as total U.S. trade will have declined for the second consecutive year.
What gives?
There are at least three factors:
- Supple supply chains
- Boeing
- Gold
Manufacturing is mobile
First, supply chains have proven relatively supple in confronting the nearly 3-year-old U.S.-China trade war — and keeping U.S. consumers and businesses happy.
Four of the five U.S. imports from China that declined the most since 2017 have witnessed partial shifts to other countries, principally South Korea, Vietnam and Taiwan.
For example, imports of computer accessories and other parts from China, down $7.76 billion when comparing the first 11 months of 2017 to the same 11 months of 2020, have increased overall, up $296.42 million. Most of that gain has been captured by Taiwan and South Korea, according to U.S. Census Bureau data I have analyzed.
Imports of portable hard drives and other digital storage devices from China have fallen $3.72 billion since Trump took office but have risen $3.6 billion in that time period. Biggest gains? Imports from South Korea and Taiwan.
Imports of cell phones and related equipment, down $16.11 billion to China since 2017, are up slightly from the rest of the world, excluding China. Imports from Vietnam alone have increased $7.35 billion.
It’s not all high-tech, either. Imports of furniture from China, down $4.12 billion, are only off $194.87 million with the world in that time. Imports from Vietnam are up $2.32 billion.
Leading U.S. export takes hit
Second, aircraft, long the United States’ dominant export, suffered the one-two punch of two deadly, back-to-back Boeing
U.S. exports in this category are down $43.36 billion through November of 2020, when compared to the same period of 2017. That’s almost a 40% decrease at a time when overall U.S. exports — even being dragged down by the aircraft category — are off only 5.47%. Exports to China alone are off $9.68 billion, more than 22% of the total.
Covid-19 reaction
Third, gold.
When the coronavirus struck, and as the U.S. response lagged, the value of gold rose. Gold rises in value when financial markets are nervous.
Although gold tends to be imported into the United States from gold-mining countries during times of distress and exported to Switzerland and a few other countries, this time something else happened.
This time, gold came from Switzerland to the United States. Perhaps there was pent up demand due to limited trans-Atlantic flights. Perhaps Switzerland’s currency interventions earlier this year played a role. Perhaps heightened security in Miami, a prime entry point for gold in previous years, made it less appealing.
Whatever the reason, gold imports from Switzerland surged. Overall, U.S. imports of gold through November are up 320.95% this year while exports are up just 21.26%. Imports from Switzerland, which accounted for 13% of the total in 2019, now account for 44%. There’s a lot of gold under mattresses in the United States.
In fact, the U.S. deficit that has increased the most in 2020 is not China’s, which is down, or Mexico’s, which is up, or Vietnam’s, which is also up. It is Switzerland’s.
Perhaps in response to that, the United States recently declared Switzerland a currency manipulator, something it also did for Vietnam, despite the fact that at least one barometer would suggest that neither of their currencies is overvalued.
But President Trump and his trade advisors have made it clear during his tenure that deficits are the enemy, so it is not surprising that his administration would respond to those increasing deficits with increased tariffs, as it has done with Vietnam, and with charges of currency manipulation, as it did with both.
The problem is, fighting a trade deficit is anything but simple.
