Trump SOTU Trade Message: An Advance Fact-Check
2018 Annual Trade Data Show Highest-Ever U.S. Deficit with China, Highest NAFTA Deficit in a Decade

2018 Annual Trade Data to Be Released Wednesday Likely to Show Highest-Ever U.S. Deficit with China, Highest NAFTA Deficit in a Decade

Grim Trade Balance Data Spotlights Imperative for Trump to Not Cave on China Trade Talks and to Work with House Democrats to Improve NAFTA Deal 

The 2018 annual trade data to be released by the U.S. Census Bureau on Wednesday will likely show record-setting U.S. goods trade deficits, capping two years of steadily rising trade deficits for the Trump administration that contrast with candidate Donald Trump’s promises to quickly reduce them.  The rate of growth in the trade deficit has increased during the Trump era, with the increase from 2017 to 2018 greater than the change from 2016 to 2017.

“More important than Trump failing on the trade-deficit-reduction benchmark for success he set on trade is that he focus on addressing the root causes by securing a China trade deal that’s not about short-term soy and gas sales but addresses structural issues fueling the deficit and by working with congressional Democrats to improve the NAFTA so it has a chance to pass,” said Lori Wallach, director of Public Citizen's Global Trade Watch. “The growth of the trade deficit is accelerating in part because of early enactment of government policies like Trump’s tax package that incentivized production and job outsourcing while the major trade reforms are just now coming to a head.”

Based on 11-month 2018 data trends, the annual 2018 trade data is likely to show the highest-ever recorded U.S. trade deficit with China. The U.S. deficit with China has grown during both years of the Trump administration, spotlighting why many China trade and foreign policy experts are urging the president not to cave in and accept a quick and meaningless China trade deal that fails to secure fundamental reforms necessary to reduce the deficit.

The data also will likely show additional imports from Mexico during the Trump administration, especially in the auto sector, driving up the trade deficit with North American Free Trade Agreement (NAFTA) partners to its highest level since 2008. The data will bolster congressional Democrats’ calls for the revised NAFTA deal that Trump signed to be improved, including by ensuring swift and certain enforcement of strong labor and environmental standards to reduce the incentive to outsource jobs to Mexico.

When Wednesday’s data is released, Public Citizen will post updated annual data, which also will be available on our Trump trade deficit tracker. Annual trends for 2018 will likely be in line with the following major trends observed through the first 11 months of the year:

What to Look for When Census Releases the Annual 2018 Trade Data on Wednesday

Deficit chart
Source: U.S. Census Bureau. All figures adjusted for inflation. NAFTA trade balance does not include re-exports of imported goods.

  • The U.S. trade deficit with China is on pace to set another all-time record. The goods trade deficit with China was the highest first 11 months ever recorded – a 15 percent increase over 2016 – the last year of the Obama administration. The China goods trade deficit during the first 11 months of 2018 was $382 billion, a 9 percent increase over a $352 billion deficit in 2017, which came after a 6 percent increase over $332 billion in 2016, President Barack Obama’s last year in office.

  • The U.S. goods trade deficit with NAFTA partners is on pace to be the highest in the decade since the financial crisis – a 20 percent increase over 2016 – with auto leading the growth. The U.S. trade deficit with NAFTA partners during the first 11 months of 2018 increased 10 percent to $198 billion from $179 billion in 2017, which was an increase of 9 percent from $164 billion in 2016. The previous record 11-month NAFTA trade deficit came in 2008 before the effect of the 2008-09 financial crisis when it reached a record $220 billion before falling to $130 billion in 2009. Three-fifths of the $40 billion growth in Mexican imports to the United States since 2016 is accounted for by the automotive (HS 87) and miscellaneous machinery sectors (HS 84). This comes before GM’s closures of four plants and opening of a new Mexico plant.

  • The overall U.S. goods trade deficit with the world is set to be the highest since the financial crisis – up 14 percent over 2016. The U.S. trade deficit with the world over the first 11 months of 2018 increased 8 percent to $806 billion in 2018 from $749 billion in 2017, which was up 6 percent from $707 billion in 2016. The previous record 11-month deficit was prior to the 2008-09 financial crisis when it reached $949 billion in 2006 before falling to $531 billion in 2009.

The U.S. Trade Deficit is Worse Than It Looks

U.S. energy exports are masking deepening manufacturing deficits. In 2008, oil and gas made up a greater share of the U.S. trade deficit than all other products combined. Since then, the deficit in oil products has plummeted and now makes up only 7 percent of the deficit with the United States projected to be a net energy exporter next year. Meanwhile, the deficit in manufactured goods has expanded and the surplus in agricultural products has declined. But for the boom in domestic energy production and exports, the overall trade deficit would have been much worse.

The growth of the trade deficit is accelerating under Trump. The trade deficit is not just growing larger, but quickening its pace of growth under Trump. For the world deficit over the 11-month period, after a 6 percent bump between 2016 and 2017, the deficit increased 8 percent from 2017 to 2018. And, as the trade deficit is growing twice as fast as GDP, now almost reaching record pre-financial crisis levels as a share of GDP, it’s not simply the strong U.S. economy that is driving the trade deficit, contrary to what some experts claim. Rather, there are structural trade problems.

Breathless coverage this past year of the impact of Chinese tariffs on U.S. soybeans, the second-largest export to China (after aerospace equipment) betrays the depletion of the U.S. export base. Not only do we now import $4 worth of goods for every $1 we sell to China, but low-value-added commodities like soybeans, cotton, oil, gas, metal scrap, wood pulp and paper waste make up most of the top 15 U.S. export products to China. In fact, 43 percent of our exports to China are low-value-added products, while only 6 percent of imports from China are in low-value-added categories. If more high-value-added products are produced offshore, our structural trade deficit will persist.

NOTE: We provide comparison data for cumulative deficits over 11 months for 2018 relative to past years because this offers a clearer picture of trade trends than changes in month-to-month numbers. Monthly trade figures are volatile, and Census’ “seasonal adjustment” of it cannot control for unpredictable factors, such as exporters shifting shipment dates to avoid imposition of various countervailing tariffs. We focus on goods trade balances because services data by country lags the goods data and won’t be available until April 2019. The value of goods trade is also more than triple that of services trade, so has more impact on overall trends. All figures are adjusted for inflation, representing changes in trade balances expressed in constant dollars.

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