Third-Quarter Data Shows Record U.S. Trade Deficits During Trump Presidency

Contrary to Trump’s Campaign Pledges to Speedily Reduce the Deficit, Nine-Month Data Show Largest Deficit Ever Recorded With China and Largest With NAFTA Nations in a Decade

Government data released today reveals the highest U.S. goods trade deficit in a decade for the first three-quarters of 2018, contradicting President Donald Trump’s midterm campaign trail triumphalism on trade. During Trump’s presidency, the U.S. trade deficit with China has risen to the highest ever recorded, while the deficits with the world and with North American Free Trade Agreement (NAFTA) nations have steadily grown, reaching nine-month levels in 2018 higher than any year since before the 2008-2009 financial crisis.

“Instead of the speedy reduction in the trade deficit that Trump promised as a focal point of his campaign, during his presidency, the U.S. trade deficit with the world, China and NAFTA countries has steadily grown,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “This alarming data spotlights that the Trump administration has chosen not to employ all of the tools at its disposal to bring down the trade deficit.”

Today’s U.S. Census Bureau release of the nine-month 2018 trade data reveals a global deficit and a China deficit that is higher than the nine-month level of Trump’s first year, which was higher than the nine months of President Barack Obama’s last year (all figures adjusted for inflation). The U.S. also is on track to end 2018 with the highest goods trade deficit with NAFTA partners since 2008. This is being driven by increasing imports from Canada and Mexico since 2016, but especially from Mexico this year.

As our Trump trade deficit tracker shows, the nine-month 2018 data indicate:

  • The U.S. trade deficit with China sets another all-time record. The goods trade deficit with China over the first nine months of 2018 was the highest deficit ever recorded for the first three quarters of a year – a 13 percent increase over 2016. Comparing the first nine months of Trump’s first year to his second year, the China goods deficit increased 8 percent, from $280 billion in 2017 to $301 billion in 2018. This compares to $268 billion for the first three quarters of 2016, Obama’s last year in office.
  • After increasing steadily during the Trump presidency, with a total increase of 23 percent over 2016, the U.S. goods trade deficit with NAFTA partners during the first three quarters of 2018 was the highest in a decade. The U.S. trade deficit with NAFTA partners during the first nine months of the year increased 11 percent, from $144 billion in 2017 to $160 billion in 2018 after falling to $130 billion in 2016, the last year of Obama’s term. The 2008 nine-month deficit, before the effect of the crisis was felt, reached a record $188 billion before falling to $101 billion in 2009 over the same nine-month period.
  • The overall U.S. goods trade deficit with the world over the first nine months of 2018 was the highest in the decade since before the financial crisis and up 13 percent over 2016. The U.S. trade deficit with the world over the first nine months of 2018 increased 7 percent, from $599 billion in 2017 to $643 billion in 2018, up from $570 billion in 2016, the last year of Obama’s term. The 2008 nine-month deficit, before the effect of the financial crisis was felt, had reached a record $744 billion before falling to $420 billion over the same period in 2009.

The growth of the NAFTA trade deficit has been overshadowed by focus on U.S.-China trade conflicts. But it is notable that the growth of the U.S.-Mexico deficit is accelerating, with 11 percent growth from the first nine months of 2017 to the same period in 2018 compared to 6 percent growth over that period from 2016 to 2017. The U.S. deficit with Canada is still growing, but the rate has not accelerated.

This data likely will color the debate next year as a renegotiated NAFTA heads toward congressional consideration. Public Citizen’s analysis of the NAFTA 2.0 text revealed some improvements progressives have long demanded, damaging terms long opposed and important unfinished business. The analysis showed that fixing NAFTA’s trade-deficit-raising terms that incentivize U.S. firms to outsource jobs to Mexico to pay workers poverty wages, dump toxins and bring their products back here for sale remains a work-in-progress.

The latest trade data spotlights actions the Trump administration has chosen not to take to bring down the U.S. trade deficit.

The data arrives on the heels of Trump’s Treasury Department failing to label any country a currency manipulator. An analysis released recently by Public Citizen shows how the Treasury Department’s decision to rely on reporting criteria created by the previous administration has ensured no action on the issue, despite then-candidate Trump pledging to crack down on countries that gain trade advantages by distorting currency values.

As well, Trump has not exercised the authority he has to reverse waivers of “Buy America” procurement policies that outsource U.S. tax revenues to purchase imports for government use. He also has not followed through on his campaign pledges to penalize imports from firms that consistently outsource jobs or limit government contracts to firms that outsource jobs.


When Third-Quarter Data Is Released Friday, U.S. Trade Deficit Likely to Show A Continued Climb Under Trump

Deficit for Nine Months of 2018 Likely to Be Largest Ever Recorded With China and Largest With NAFTA in a Decade as Imports from Mexico Grow

The United States is on track to post a record high goods trade deficit for the first three quarters of 2018, contradicting President Donald Trump’s midterm campaign trail triumphalism on trade.

Instead of the speedy reduction in the trade deficit that Trump promised as a focal point of his presidential campaign, during his presidency, the U.S. trade deficit with the world, China and North American Free Trade Agreement (NAFTA) nations has steadily grown. The data underscores that the Trump administration has chosen not to employ all of the tools at its disposal to bring down the trade deficit.

When the U.S. Census Bureau releases nine-month data Friday, the global and China deficits are likely to be higher than the nine-month level of Trump’s first year, which was higher than the nine months of President Barack Obama’s last year. The U.S. also is on track to end 2018 with the highest goods trade deficit with NAFTA partners since 2008. This is being driven by increasing imports from both Canada and Mexico since 2016, but especially from Mexico this year.

This note provides comparison data for the cumulative third-quarter 2018 deficit relative to past years. This offers a clearer picture of overall trade flow trends than changes in month-to-month numbers. Monthly trade figures are volatile, and the “seasonal adjustment” of the monthly data done by the Census Bureau does not control for key factors, such as U.S. exporters trying to speed up shipments to avoid imposition of various countervailing tariffs. We focus on goods balances because services data by country lags the goods data by months. (The relevant services data will not be available until December 2018.) All figures are adjusted for inflation, so they represent changes in trade balances expressed in constant dollars.

Graph-Third-Quarter-Trade-Deficit-oct-2018

When Friday’s data is released, we will post updated nine-month cumulative data, which also will be available on our Trump trade deficit tracker. But year-to-date trends through the first three quarters of 2018 likely will be in line with the following major trends observed through the first eight months of the year:

  • The U.S. trade deficit with China is on pace to set another all-time record. The goods trade deficit with China over the first eight months of 2018 was the highest first eight months ever recorded – a 12 percent increase over 2016. Comparing the first eight months of Trump’s first year in office to his second year, the China goods trade deficit increased 7 percent from $245 billion in 2017 to $261 billion in 2018. This compares to $234 billion for the first eight months of 2016, Obama’s last year in office.
  • After increasing steadily during the Trump presidency, with a total increase of 24 percent over 2016, the U.S. goods trade deficit with NAFTA partners during the first eight months of 2018 was the highest in the decade since the financial crisis. The U.S. trade deficit with NAFTA partners during the first eight months of 2018 increased 10 percent from $129 billion in 2017 to $142 billion in 2018 after falling to $115 billion in 2016, the last year of Obama’s term. The 2008 eight-month deficit, before the effect of the crisis was felt, reached a record $167 billion before falling to $88 billion in 2009 over the same period.
  • The overall U.S. goods trade deficit with the world over the first eight months of 2018 was the highest in the decade since the financial crisis and up 13 percent over 2016. The U.S. trade deficit with the world over the first eight months of 2018 increased 7 percent from $532 billion in 2017 to $570 billion in 2018, up from $506 billion in 2016, the last year of Obama’s term. The 2008 eight-month deficit, before the effect of the financial crisis was felt, reached a record $658 billion before falling to $362 billion over the same period in 2009.

The growth of the NAFTA trade deficit has been overshadowed by focus on U.S.-China trade conflicts. But it is notable that the growth of the U.S.-Mexico deficit is accelerating, with 10 percent growth from the first eight months of 2017 relative to the same period in 2018 compared to 7 percent growth over that period from 2016 to 2017. The U.S. deficit with Canada is still growing, but the rate has not accelerated. 

This data is likely to color the debate next year as a renegotiated NAFTA heads toward congressional consideration. Public Citizen’s analysis of the NAFTA 2.0 text revealed some improvements progressives have long demanded, damaging terms long opposed and important unfinished business. The analysis showed that fixing NAFTA’s trade-deficit-raising terms that incentivize U.S. firms to outsource jobs to Mexico to pay workers poverty wages, dump toxins and bring their products back here for sale remains a work-in-progress.

The latest trade data spotlights actions the Trump administration has chosen not to take to bring down the U.S. trade deficit.

The data arrives on the heels of Trump’s Treasury Department failing to label any country a currency manipulator. An analysis released recently by Public Citizen shows how the Trump Treasury Department’s decision to rely on reporting criteria created by the previous administration has ensured no action on the issue, despite then-candidate Trump pledging to crack down on countries that gain trade advantages by distorting currency values.

As well, Trump has not exercised the authority he has to reverse waivers of “Buy America” procurement policies that outsource U.S. tax revenues to purchase imports for government use. He also has not followed through on his campaign pledges to penalize imports from firms that consistently outsource jobs or limit government contracts to firms that outsource jobs.


Will the U.S. Treasury’s Imminent Report to Congress on Trade Partners’ Currency Practices Once Again Fall Short of Its Mandate?

A Critical Tool to Address Currency Manipulation and Stem Record-Setting Trade Deficits Has Been Shirked by the Trump Administration, a New Public Citizen Analysis Shows

The Trump administration will release its latest report on trade partners’ currency practices imminently. Like its prior three iterations of this semi-annual report mandated by Congress to identify countries whose distortion of currency values to gain trade advantages must be addressed, it is unlikely any country will be listed. A new analysis by Public Citizen shows how the Trump Treasury Department’s decision to rely on reporting criteria created by the previous administration has ensured no action on the issue, despite then-candidate Donald Trump pledging to crack down on countries that gain trade advantages by distorting currency values.

Public Citizen’s analysis shows that the Treasury Department is not taking full advantage of the tools available to put countries on notice for damaging currency practices. The latest “Report to Congress on the Foreign Exchange Policies of Major Trading Partners of the United States” is expected this week.

“One of Trump’s most emphatic campaign promises was to declare China a currency manipulator on Day One and crack down on any country misaligning its currency to cheat on trade, but Trump’s Treasury secretary has chosen to rely on criteria created by the previous administration that ensure no action is taken,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.

Large U.S. structural trade deficits consistent with misaligned currencies have grown in recent years. Data released Friday by the U.S. Census Bureau show that the U.S. merchandise trade deficit with the world over the first eight months of 2018 is the highest in the decade since before the 2008-09 financial crisis.

After rising over the Trump administration’s first two years, the U.S. merchandise trade deficit with NAFTA partners in 2018 is now also on pace to be the highest in a decade. The U.S. goods trade deficit with China over the first eight months of 2018 is the highest ever recorded.

Drawing in part from analysis by economists at the Peterson Institute for International Economics and the Council on Foreign Relations, Public Citizen recommends several changes to Treasury’s reporting regime to better align the review methodology with statutory obligations. This includes broadening the number of countries analyzed by eliminating self-imposed, arbitrary cutoffs on which countries are investigated, reviewing countries’ overall policy stances rather than immediate practices and reporting on countries’ efforts to improve transparency on foreign exchange interventions.

“While the NAFTA 2.0 deal sets an important precedent by being the first to include a currency provision in its main text, it provides no mechanism for actually disciplining countries that manage their currency values in a way that affects trade. The Treasury reporting process, on the other hand, is tied to a set of remedial actions and covers many more countries. The Trump administration must take full advantage of the authority Congress has provided to influence the foreign exchange practices of trading partners through the semi-annual reporting process,” Wallach said.

The full Public Citizen analysis is available here.


Public Citizen Analysis: How the New NAFTA Text Measures Against Key Changes We Have Demanded to Stop NAFTA’s Ongoing Damage

Note from Lori Wallach, Director, Public Citizen’s Global Trade Watch

Here is our initial 14-page analysis of the NAFTA 2.0 text, following up on the statement from Sunday night. We have reviewed how the text measures up to the changes to NAFTA that Public Citizen and many other progressive organizations have long demanded. After some digging, which has been exhausting giving the 900 pages of text and annexes, we have boiled down whole chapters into bulleted highlights and lowlights and assessed whether demands are met or there are mixed outcomes or it’s too soon to know or there’s been a fail. 

Overall, the NAFTA 2.0 text reveals a work in progress with some improvements for which we have long advocated, some new terms that we oppose and more work required to stop NAFTA’s ongoing job outsourcing, downward pressure on wages and environmental damage.

The new text isn’t a transformational replacement of the entire corporate-rigged U.S. trade agreement model that NAFTA launched in the 1990s. But at the same time, in key respects, this deal is quite different from all past U.S. free trade agreements. The revised deal could reduce NAFTA’s ongoing job outsourcing, downward pressure on our wages and environmental damage if more is done to ensure the new labor standards are subject to swift and certain enforcement, and some other key improvements are made. There’s a ways to go between this text and congressional consideration of a final NAFTA renegotiation package in 2019.

Important progress has been made with the removal of corporate investor protections that make it cheaper and less risky to outsource jobs and a major reining-in of NAFTA’s outrageous Investor State Dispute Settlement (ISDS) tribunals under which corporations have grabbed hundreds of millions from taxpayers after attacks on environmental and health policies.

Termination of ISDS between the U.S. and Canada would eliminate 92 percent of U.S. ISDS liability under NAFTA and the lion’s share of total U.S. ISDS exposure overall. This, combined with the major roll back of corporate rights and ISDS coverage between the U.S. and Mexico would prevent many new ISDS attacks on domestic environmental and health policies after more than $390 million has been paid to corporation by taxpayers to date. That even this corporate-compliant administration whacked ISDS means future presidents cannot backslide and also sends a powerful signal to the many nations worldwide also seeking to escape the ISDS regime. 

A lot more work remains to be done: Unless strong labor standards and environmental standards are made subject to swift and certain enforcement, U.S. firms will continue to outsource jobs to pay Mexican workers poverty wages, dump toxins and bring their products back here for sale.

Despite Donald Trump’s “Buy American/Hire American” rhetoric, the new deal maintains NAFTA’s waiver of Buy American rules that require the U.S. government to procure U.S.-made goods, so unless that gets fixed more U.S. tax dollars and more U.S. jobs will be outsourced.

The new deal grants pharmaceutical corporations new monopoly rights so they can keep medicine prices high by avoiding generic competition. This could undermine the changes we need to make medicine more affordable here and increase prices in Mexico and Canada, limiting access to lifesaving medicines.

Areas of progress include a first-time-ever innovation of conditioning trade benefits for a percentage of autos and auto parts on the workers producing them being paid $16 per hour or more. Terms that forced countries to continue to export natural resources that they seek to conserve are eliminated. Longstanding safety and environmental problems relating to Mexican-domiciled trucks’ access to U.S. roads are addressed. Rules of origin that allowed goods with significant Chinese and others non-North American value were tightened.   

Americans have suffered under NAFTA’s corporate-rigged rules for decades. Nearly one million U.S. jobs have been government-certified as lost to NAFTA, with NAFTA helping corporations outsource more jobs to Mexico every week. The downward pressure on U.S. workers’ wages caused by NAFTA outsourcing has only intensified as Mexican wages declined in real terms since NAFTA, with Mexican manufacturing wages now 40 percent below those in coastal China.


The Imminent Text Release is a Major Milestone in NAFTA Renegotiations, but Don’t Bet on It Being the Final Deal

Will Canada agree to a North American Free Trade Agreement (NAFTA) renegotiation deal this week given the high-stakes Quebec election occurring on Oct.1? Our Canadian friends say it’s unlikely given Quebec is ground zero in the dairy trade battle now consuming NAFTA talks. The Liberal Party candidate for premier of Quebec is in a close race, and winning the province is considered vital to Prime Minister Justin Trudeau’s fall 2019 reelection. However, even without a Canada deal now, paths still remain for a three-nation deal to arrive at Congress for a spring 2019 vote. More on that below.

What’s certain is that a revised NAFTA text, likely representing the U.S.-Mexico deal completed in late August, will be posted for all to see imminently. Public Citizen will conduct a speedy review and post an initial analysis on key elements shortly after release. Knowing some important progress has been made, Public Citizen will measure the text against the changes that we and many other progressive organizations have long demanded that are necessary to stop NAFTA’s ongoing damage. Almost one million American jobs have been government-certified as lost to NAFTA, with more outsourced to Mexico every week, including recently by Verizon and Boeing. New NAFTA investor-state dispute settlement (ISDS) attacks on environmental and health policies are being regularly filed after $392 million already has been seized from taxpayers by corporations using NAFTA’s ISDS regime.

While the text release will be an important step in NAFTA renegotiations and invariably launch a flotilla of statements from policymakers and the private sector alike, it is a milestone in a long process, not the end point. And that is not only because Canada may be MIA. What is contained in the published text and how members of Congress and other key constituents react will provide greater insights to NAFTA’s ultimate fate than whether Canada is signed on at this point.

For those who intend to support any deal or oppose any deal, the text release will provide a hook to state a final position. But for most, the text release will provide a long-awaited opportunity to ascertain if there are poison pill provisions or building blocks of an acceptable deal. To date only the 500 cleared trade advisers representing mainly corporate interests and those members of Congress who ventured to the secured Capitol reading room to review the text know any details. And not all elements of the text have even been available to them.

Viewed as a work in progress, the text release likely will raise many intriguing questions:

Congressional Reaction Will Be Telling: U.S.  Trade Representative Robert Lighthizer has declared that his goal with NAFTA renegotiation is to replace the old deal with a new approach that can obtain broad bipartisan support and be passed by a wide majority. If the text generates some unhappiness in both parties, but no rebellion in either amid foreseeable consternation about Canada, then that outcome remains possible.

What Does Labor Think: The acknowledgement to date of both progress and shortcomings by powerful players who have been opposed to past deals, namely unions, has been closely watched. The U.S. labor movement has been united in expressing concern about the enforcement of a new pact’s labor provisions that will be essential to raise wages in Mexico and ease the lure to outsource jobs. Progress on eliminating the investor protections that make it easier to outsource jobs and subject domestic policies to attack and addition of stronger rules of origin for the auto sector and related wage standards has been welcomed. But absent swift and certain enforcement of much stronger labor standards, U.S. corporations will continue to outsource jobs to Mexico to pay workers a pittance, dump toxins and import products back for sale here.

If Poison Pills Are Identified, Can They Be Excised?: The administration’s fact sheets on the  U.S.-Mexico deal revealed that it included a 10-year exclusivity term for biologic medicines. Most congressional Democrats have strongly opposed these extra monopoly rights that allow pharmaceutical firms to keep prices high by avoiding competition from generic medicines. If Democrats gain control of a chamber of Congress in the midterm elections, could changes to this term or others become necessary to gain their support? President George W. Bush had to alter some terms in free trade agreements he had previously completed but not sent to Congress when Democrats gained a House majority in 2006.

What Is the Road to Trilateralandia?: If the text that is released does not include Canada, then what? To start with, despite the current near-hysteria about Canada’s situation in the NAFTA talks, the notion of countries signing a trade agreement at different times is not new. For instance, most countries signed the Central America Free Trade Agreement on May 28, 2004. But negotiations with the Dominican Republic had not been concluded when the Fast Track notice of intent to sign and enter that deal was sent to Congress. So, a second signing ceremony including the Dominican Republic was held on Aug. 5, 2004. Congress passed the deal in July 2005.

Back to 2018, under Fast Track rules, a text must be posted by Sept. 30 for the deal that Congress was notified of on Aug. 30 to be signed by outgoing Mexican president Enrique Peña Nieto. Although Andrés Manuel López Obrador (AMLO), who enters office on Dec. 1, 2018, had a negotiator at talks since June and has announced he supports the deal, our Mexican allies confirm what was previously reported: AMLO doesn’t want to be the one signing it. Nor does he want NAFTA talks to become a perilous first order of business that could derail the momentum for his domestic economic reforms that his overwhelming electoral win generated. Already, the peasant farmer organizations that were an important part of his base have announced opposition to the U.S.-Mexico deal because it does not alter terms that thwart AMLO’s ability to deliver on his promises to revitalize small-scale farming. Thus, one scenario is that the U.S. and Mexico proceed to sign a deal by Nov. 30. And then a second signing ceremony on a trilateral deal occurs later. A final trilateral deal then is sent to Congress. This is not as improbable as it may seem. Many of the outstanding issues that remain to be resolved with Canada, such as dairy or the “cultural exception,” involve terms that will be memorialized in specific Canadian schedules of commitments or in Canadian lists of “non-conforming measures,” not in rewrites of chapters of the text, although there is that chapter formerly known as “NAFTA Chapter 19” that was, written out of the deal. The trickiest questions may relate to whether the administration must obtain additional authority to continue talks with Canada, and if so, what that means for the timing with Canada. Given Fast Track’s two 90-day notice periods, a new grant of authority would push the signing of a trilateral deal to April at the earliest, which would thrust NAFTA – and Donald Trump – into the middle of Trudeau’s reelection campaign. Oh Canada!


NAFTA Notice: A Final Deal Must Be Judged on Whether It Will Stop NAFTA’s Serious Ongoing Damage

NAFTA-Announcement-Homepage-2

Statement of Lori Wallach, Director, Public Citizen’s Global Trade Watch

Note: The Trump administration gave notice to the U.S. Congress on Friday, Aug. 31 of its intent to sign a renegotiated North America Free Trade Agreement (NAFTA). Aug. 31 is the last day to give notice for a deal to be signed by outgoing Mexican President Enrique Peña Nieto. The U.S. reached agreement with Mexico on new terms, but talks with Canada are ongoing. The text of any deal would be made public only after 30 days’ notice. While much attention has been given to whether various deadlines can be met and the political and legal implications of various scenarios, the fundamental question is whether the content of a new agreement can halt NAFTA’s ongoing damage:

“We understand that progress has been made on some essential NAFTA changes we have long sought, like razing NAFTA’s investor tribunals where multinational corporations have grabbed $392 million in compensation from North American taxpayers after attacking environmental and health policies. But swift and certain enforcement of what we understand are improved labor standards is lacking and must still be added or U.S. corporations will keep outsourcing jobs to Mexico to pay workers a pittance, dump toxins and import products back to the U.S. for sale here.

Given the encouraging news about some of the key NAFTA changes we have long sought, we are closely monitoring the ongoing process with respect to improvements in labor enforcement that are necessary to counter NAFTA job outsourcing. We also closely monitoring the ongoing negotiations with Canada where several important consumer protection issues are at stake, including extended monopoly rights for pharmaceutical corporation that would increase medicine prices. Ultimately, we must see the final text to know whether our demands have been met.

Any final deal must be judged on whether it will stop NAFTA’s serious ongoing damage, given the pact now helps corporations outsource more jobs to Mexico every week (Almost one million American jobs have been government-certified as lost to NAFTA) and launch new NAFTA investor attacks on health and environmental laws after already $392 million has been grabbed from taxpayers. 

As we have made clear since Day One of renegotiations, the only agreement that can achieve broad support must end NAFTA’s job outsourcing incentives and Investor State Dispute Settlements tribunals – where corporations can attack our laws – and add strong environmental and labor terms with swift and certain enforcement to raise wages.

It may seem improbable that this administration could be making changes progressives have long sought, but public anger over outsourcing has made it impossible for business-as-usual trade agreements to get through Congress. The big questions are whether Trump will deliver a final deal strong enough to meet his election promises to return manufacturing jobs and cut the large NAFTA trade deficit and if so, whether Republicans in Congress would buck the corporate lobby and support a deal that would end NAFTA’s job outsourcing incentives and ISDS tribunals where corporations can attack our laws and add strong environmental and labor terms with swift and certain enforcement to raise wages.”


U.S. Trade Deficit for First Half of 2018 Likely to Be Largest Recorded in Years, With China Deficit on Track to Be Highest First-Half Ever Recorded

January-June 2018 Data Out This Friday Likely to Show a Trump Trade Deficit Higher Than First Halves of 2017 or 2016

Contrary to Donald Trump’s claim last week that he has reduced the trade deficit by $52 billion, the United States is on track to post a record high goods trade deficit for the first half of 2018. When the U.S. Census Bureau releases the six-month data this Friday, the global deficit and China deficit are likely to be higher than in the first half of Trump’s first year in office, which was higher than the first half of President Barack Obama’s last year. The six-month 2018 North American Free Trade Agreement (NAFTA) deficit also is likely to be higher than the first half of Obama’s last year.

US-Trade-Balance-First-Five-Months-03
U.S. Trade Deficit with Selected Partners, Sum of First Five Months (Source: U.S. Census Bureau)

Trump’s $52 billion trade deficit reduction claim seems to be premised on a misleading comparison between an annualized change in the goods and services trade balance between the first quarter of 2018 (a $902 billion deficit) and the second quarter of 2018 (a $850 billion deficit.) But the U.S. goods trade deficit in the first quarter of 2018 was the largest first-quarter deficit since before the financial crisis, meaning a decline from that in the next quarter says very little about the overall trend. This comparison, like changes in month-to-month deficit figures that often are reported in the press, obscure actual trends. The monthly data are volatile, especially now, as U.S. exporters race to beat retaliatory tariffs on U.S. goods. Reviewing the same five-month goods trade balances shows that U.S. deficits with the world and with China were higher over the first five months of 2018 compared to the first five months of 2017, which in turn were higher than the first five months of 2016, even after adjusting for inflation.  (All figures in this memo are inflation-adjusted, so they represent the actual growth in the deficit expressed in constant dollars.)

What to Look for When Census Releases the Six-Month 2018 Trade Data on Friday

  • The goods trade deficit with China over the first half of 2018 is on track to be the highest first-half ever recorded. Comparing the first five months of Trump’s first year in office to his second, the China goods trade deficit increased 8 percent from $141 billion in 2017 to $152 billion in 2018. This compares to $136 billion for the first five months of 2016, Obama’s last year. As was widely reported, U.S. exports were inflated during the first half of 2018 by shipments racing to get ahead of the imposition of tariffs, but imports also grew substantially.
  • The goods trade deficit with the world over the first half of 2018 is likely to reach a level closer to the record deficits before the 2008-09 financial crisis. The U.S. trade deficit with the world over the first five months increased 5 percent from $320 billion in 2017 to $336 billion in 2018 after already hitting $296 billion in 2016, the last year of Obama’s term. The 2008 first five-month deficit, before the effect of the crisis was felt, reached a record $385 billion before falling to $206 billion in 2009 for the same period. 

  • The six-month 2018 NAFTA goods trade deficit may also increase in Trump’s second year, as it did in his first relative to Obama’s last year in office. The NAFTA deficit for the first five months of 2018 increased from $70 billion in 2016 to $82 billion in 2017 to $84 billion in 2018. Because re-exports now represent 20 percent of U.S. goods exports to NAFTA nations, for the NAFTA figures we use domestic export data. This excludes goods not actually produced in the exporting country. In 2016, 44 percent or nearly $100 billion of U.S. re-exports went to NAFTA partners – $53.5 billion to Mexico and $45.7 billion to Canada. No other country received more than 6 percent of U.S. re-exports. Not removing re-export artificially inflate export

Why Month-to-Month Trends Miss the Main Story

Many trade watchers focus on the change in month-to-month numbers, especially now as they study whether newly imposed tariffs are altering trade flows. But monthly trade figures are volatile, and the “seasonal adjustment” done by Census does not control for factors such as U.S. exporters trying to beat the imposition of various countervailing tariffs. Thus, the main storyline when the May trade figures were released was that the monthly deficit with the world was the lowest since October 2016. But missing in this assessment was that U.S. trade deficits with the world and with China were higher during the first five months of 2018 compared to the same period in 2017, which were in turn higher than the first five months of 2016, even after adjusting for inflation. A more complete picture of U.S. trade balance trends is achieved by comparing the year-to-date totals through the same point of previous years. This removes the need for seasonal adjustment, given the data cover the same months each year. (We focus on goods balances rather than total goods and services in this memo because services data broken down by trading partner lags the goods data by months. The services data by partner for the first half of 2018 will not be available until September 2018.)

NAFTA Balances and the Skew from Re-Exports: Yes, We Have A Deficit With Canada

Accurately accounting for NAFTA trade balances is complicated. Since NAFTA went into effect, the share of U.S. exports to Mexico and Canada that are re-exports of goods made in other countries has jumped from 5 percent in 1993 pre-NAFTA to 20 percent in 2017. (Re-exports are goods imported, for instance, from China into the United States and then exported to Canada without change. In 2016, one-third of U.S. re-exports to Canada were produced in China.) Counting re-export of foreign-made goods in U.S. export data inaccurately inflate export numbers. But to get an accurate balance, the import side of the equation also must be considered. The United Nations’ trade database, called Comtrade, provides official government data on domestic exports (i.e., not including re-exports). Consider the controversial question of whether the United States has a trade deficit with Canada. The Comtrade data show $221 billion in U.S. domestic exports to Canada and $266 billion in Canadian domestic exports to the United States in 2016, the most recent year that can be compared to available services data. That yields a $45 billion U.S. goods trade deficit with Canada. After subtracting the $24 billion U.S. services trade surplus with Canada documented by the U.S. Bureau of Economic Analysis, the United States still had a $21 billion goods and services trade deficit with Canada in 2016. When this issue came to the forefront earlier this year, analysts who did not subtract re-exports instead calculated a $7 billion U.S. surplus with Canada for 2016.

A Deeper Dig into the Data: About Those Soy Exports

Several deeper cuts of the data are worth considering. The first relates to what the United States is exporting, which to the world in 2017 was $138 billion of agricultural goods and $1.1 trillion of manufactured goods. There has been breathless coverage of how China’s retaliatory tariffs have impacted U.S. soybean exports, which are noted to be the second largest U.S. export to China after civilian aircraft, engines and parts. What this reveals is the lack of U.S. value-added exports to China after that nation’s accession to the World Trade Organization (WTO). After soybeans, the top 15 U.S. export products to China include commodities like crude oil (No. 4), copper scrap ( No. 7), propane (No. 8), aluminum scrap (No. 11), wood pulp (No. 12), cotton (No. 14) and paper waste (No. 15). The giant trade deficit with China is the result of exporting only $120 billion worth of goods in total. However, a large portion are low value-added commodities. Of the top 15 U.S. export products to China, $24 billion represent such goods, and only $31 billion, or 56 percent, represent high value-added product categories like cars and electronics. Meanwhile, 84 percent of Chinese imports into the United States are in these high- value categories. The United States runs over a $100 billion deficit with China in electrical machinery alone.

The second deep dive relates to the impact on wages from the composition of the goods we import and export. One way to view this is by checking the subset of the data on our manufacturing trade balance. Even the most orthodox economists admit that trade changes the composition of jobs – and thus the wages – available for U.S. workers. As the grandfather of modern trade economics, Nobel-Prize winning economist Paul Samuelson found in one of the last papers he published before his death, offshoring of higher-paid jobs to countries like China and India can cause U.S. workers to lose more in wages than they gain from access to cheaper imported goods. The downward pressure on wages is still the predominant feature of the U.S. labor market and trade is one of the significant factors fueling it and one of the only ones that can be altered via policy changes. The Center for Economic and Policy Research (CEPR) revealed that when comparing the lower prices of cheaper imported goods to the income American workers lost from low-wage competition under current trade policy, by 2001 the trade-related wage losses were larger than gains from access to cheaper goods for the majority of U.S. workers. CEPR found that those without college degrees (58 percent of the workforce) had likely lost an amount equal to 12.2 percent of their wages under NAFTA-style trade, even after accounting for the benefits of cheaper imports. That meant a net loss of more than $3,965 per year for the average worker. Despite this, defenders of the trade status quo dismiss the relevance of trade deficits, especially given strong economic growth figures in an economy running near full employment. Yet, while headline economic indicators are strong, damage that is occurring may remain invisible. When the tide goes out on a hot economy, the damage in lower wages and the disappearance of middle-class jobs for the majority of Americans without college degrees may be seen and felt acutely, just as it was after the 2008-09 financial crisis.


Will the U.S. and EU Revive the Damaging Pro-corporate, Anti-people TTIP Agenda?

EU-US-Deal-Notes

Trump promised a new approach on trade policy that would fix past damage to working people. But what his administration and European Union officials said this week in their joint statement after European Commission President Jean-Claude Juncker’s visit to the White House sure sounds like a revival of the status-quo, pro-corporate agenda that Trump railed against in his campaign.

It remains unclear what the joint statement ultimately will lead to. However, anyone who cares about the safety standards on which we rely for our food and medicine, the energy and climate policies needed to save our planet, or financial regulations designed to prevent banks from gambling with our money and creating another crisis should be extremely worried.

The statement’s overall tone and specific worrying buzz words reflect the agenda that had been pushed by the largest U.S. and European banks, agribusinesses and other powerful industry groups in the Transatlantic Trade and Investment Partnership (TTIP) talks undertaken during the previous administration. That TTIP agenda had been resoundingly rejected by civil society on both sides of the Atlantic because people in Europe and the United States refuse to allow our fundamental environmental and consumer safeguards to be rewritten behind closed doors.

The statement calls for “zero non-tariff barriers.” “Non-tariff barriers” is trade-speak for any domestic policy or regulation that can affect multinational corporations’ ability to move goods or services across borders. Many consumer, health, or environmental safeguards we rely on to protect people and the environment are considered “non-tariff barriers” by business interests. Given that, does inclusion of this clause mean that the goal of these negotiations will be zero domestic safeguards on either side of the Atlantic – such as European GMO standards or U.S. financial regulations post-crisis – that might inconvenience a multinational corporation? That would be an even more radical pro-corporate plan than what was tried (and failed) in the TTIP negotiations.

Worryingly, the statement calls for “reducing barriers” to “chemicals,” “pharmaceuticals,” and “medical products.” The U.S. chemical industry sought to use TTIP to undermine Europe’s superior Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) policy. This chemical safety regime  is much more robust in protecting the public from unsafe chemicals than the broken U.S. policy.

Meanwhile, European pharmaceutical manufacturers called for the U.S. FDA to relinquish its current responsibility to independently approve the safety of medicines sold in the United States, proposing that the U.S. government automatically accept a European determination that a drug produced in Europe is safe for U.S. consumers. This language suggests that this dangerous industry wish list may be revived.

References to “a dialogue on standards in order to increase trade, reduce bureaucratic obstacles and slash costs” also sound suspiciously like a revival of the problematic and highly undemocratic “regulatory cooperation” agenda from TTIP. While cooperation among regulators is not inherently a bad idea, it IS very dangerous for such cooperation to happen in the context of trade negotiations that have explicitly prioritized reducing costs for businesses over any protection of consumers or the environment. The biggest banks, agribusiness, chemicals and pharma corporations in Europe and the U.S. have made clear what consumer and environmental protections they intend to undermine in the name of such “regulatory cooperation.”

The statement also explicitly calls for increasing exports of liquefied national gas (LNG) from the United States to Europe. This would create more market incentives for LNG companies to increase the environmentally destructive practice of “fracking” across the United States, even when many U.S. states have already or are considering banning the controversial practice altogether. Pushing for the extraction and transatlantic transport of even more fossil fuels takes both the United States and European Union in the categorically opposite direction of what is needed to transition to a low-carbon economy to address climate change.

It may be unsurprising – if tragic – that the Trump administration would pursue this policy, given its shameful withdrawal from the Paris Climate Accords. But that the EU would continue to pursue this is a stark abrogation of its commitment to combat climate change.

Finally, the statement’s call for the immediate creation of an Executive Working Group to move the agenda forward raises alarm bells. What is the scope of its mandate? Will there be any mechanisms to ensure that it is democratically accountable on both sides of the Atlantic? What is the nature of the “negotiations” it is undertaking?

A revival of the TTIP agenda might make some corporate cronies happy, but it would cause tremendous harm to the rest of us on both sides of the Atlantic. And it would be a clear betrayal of Trump’s promises to fix trade policy.


Today’s D.C. Visit by Top Mexican Trade Officials May Reveal Whether a Renegotiated NAFTA Deal Can Be Signed in 2018

Statement of Lori Wallach, Director, Public Citizen’s Global Trade Watch

 Note: Today, the top Mexican trade officials of the current Peña Nieto and incoming López Obrador administrations will meet with U.S.  Trade Representative Robert Lighthizer. At issue is whether deals can be reached between the United States and Mexico on the last outstanding issues in North American Free Trade Agreement (NAFTA) renegotiations in time for the pact to be signed before Mexico’s current president leaves office. The high-level meeting occurs five weeks before the August 31 date by which the U.S.  Congress must be formally notified of a deal under Fast Track procedures for Mexico’s current president to sign a new pact. Even if a deal is signed this year, a U.S. congressional vote would likely occur in 2019. Lori Wallach said:

 “What’s new is Mexico’s heightened motivation to finalize a deal now, given that both the outgoing and incoming administrations appear to have compelling reasons to want a deal done in time for the current Mexican president to sign it and they generally agree on what terms would be acceptable. 

“If a deal cannot be reached now and negotiations roll into 2019, the timeline for talks to be concluded, as well as NAFTA’s ultimate fate, become less certain.

“Achieving a deal that can get through the U.S. Congress and that satisfies Donald Trump’s high-profile campaign pledges to bring back manufacturing jobs and reduce the NAFTA trade deficit is extremely tricky, but ironically less so if current predictions of Democratic gains in the midterm elections hold true. For decades, congressional Democrats have advocated for the NAFTA changes that could deliver the outcomes Trump promised, including elimination of NAFTA’s investor protections that promote job outsourcing and the addition of strong, enforceable labor and environmental standards to raise wages in Mexico and level the playing field.”


Unpacking Disingenuous GOP Complaints About Presidential Trade Authority

At midnight on June 30, Fast Track, which delegates Congress’ constitutional trade authority to the president, extended for another three years.

The congressional Democrats, who fought this broad give-away of control over trade agreements even when it was President Barack Obama’s request in 2015, could not even obtain a vote because the procedure is so rigged it automatically extends unless a “non-extension resolution” is passed. But that vote can only occur if the congressional GOP leadership allows it.

And the congressional GOP, most of whom supported the extreme Fast Track procedure but now are cynically howling about undue presidential authority over trade, chose not to take action.

Under the U.S. Constitution, Congress is supposed to write the laws and set trade policy, while the executive branch represents the United States in negotiations with foreign governments. When it came to trade agreements, this arrangement required cooperation between the branches.

For 200 years, these key checks and balances helped ensure that no one branch of government had too much power over trade policy. But, starting with Nixon, presidents have tried to seize those congressional powers using Fast Track.

Fast Track, which supporters renamed Trade Promotion Authority as the procedure became increasingly controversial, empowers the executive branch to unilaterally select partner countries for “trade” pacts, decide the agreements’ contents, and then negotiate, sign and enter into the agreements — all before Congress has a vote on the matter. Normal congressional committee processes are forbidden, meaning that the executive branch is empowered to write lengthy legislation on its own with no review or amendments. And, then the president is guaranteed a vote on the done deal within a set amount of time with no amendments allowed and debate limited.

President Obama — despite his campaign promise to reject Fast Track — requested the authority for the Trans-Pacific Partnership (TPP). A years-long battle ensued, with opposition coming from a majority of the U.S. public, most House Democrats and a sizeable bloc of Republicans, organized labor, environmental groups, public health organizations, family farmers, and many more. Despite the unprecedented strength and diversity of this coalition focused on a trade issue, Fast Track authority was passed by a one-vote margin in June 2015.

This delegation of Fast Track authority was for a three-year period with an automatic renewal for another three years after that. The only way to stop the automatic renewal of Fast Track would have been with a congressional resolution of disapproval.

The AFL-CIO sent a letter to Congress opposing Fast Track renewal in its current form because of its opacity and inadequate labor standards. But the broad coalition in Congress and outside that almost stopped Fast Track in 2015 did not organize a push to end the procedure because the disapproval mechanism is designed to only function if the congressional leadership allows it.

And, it was a telling spectacle to watch Sen. Bob Corker (R-Tenn.) and other GOP senators going ballistic over President Donald Trump’s authority to do anything to stop trade cheating while revealing their disinterest in getting rid of the Fast Track legislative luge run. 

Fast Track has been the necessary swamp oil to grease the skids to pass pacts like the North American Free Trade Agreement (NAFTA), and other job-killing deals packed with special corporate protections and rights. The corporate lobby opposes the president having trade authority to combat trade cheating that costs American jobs, but loves Fast-Tracked trade deals that make it easier to outsource additional jobs.

The GOP inaction on Fast Track disapproval made 100 percent clear what is really going on: Team Trade Status Quo is keen to eliminate presidential authority on trade matters that break with their pro-job-outsourcing trade agenda while remaining committed to the current iteration of Fast Track with a view to trying to use it to get more-of-the-same trade deals.

That dynamic makes the current NAFTA renegotiation a moment of truth. The U.S. Trade Representative, Robert Lighthizer, is using this delegation of Fast Track to negotiate a NAFTA replacement that actually has a chance of making things better for working people rather than expanding greater corporate control over our lives.

The renegotiated NAFTA just might eliminate the job outsourcing incentives at NAFTA’s heart, including the system that empowers multinational corporations to attack our laws for taxpayer money before a panel of three corporate lawyers. And the NAFTA replacement may even add labor and environmental standards that could actually help raise wages and improve conditions for people throughout North America.

In the face of this potential game-changer of a trade agreement, congressional Republicans’ inconsistency on Fast Track belies the truth, that for them criticism of presidential trade authority was never about constitutional checks and balances – it was all about making sure their corporate cronies can do whatever they want.

However, the revised NAFTA deal is not done yet. And the GOP’s decision not to act against Fast Track extension suggests that they still think they can get the terrible, TPP-style NAFTA deal that they want.

The diverse coalition that fought Fast Track and that defeated the TPP must remain vigilant and show that a revolutionary new model for NAFTA that puts working people first is the only type of deal that will pass in Congress.