Buried in all the happy talk about the fact that our trade deficit in goods and services fell in January from $39.9 billion in December to $36.0 billion in January, a bigger drop than economists had expected, is the fact that all of the drop was due to the falling price of oil, from almost $50 per barrel in December to $39.81 per barrel in January. Don’t get me wrong, that’s certainly good news. But the bad news is that the non-petroleum deficit in goods (in other words, manufactured products – the part of the trade deficit that costs us jobs) actually rose by $0.1 billion.
The two biggest culprits in this rise were China and Korea. Our trade balance with China worsened by $0.7 billion while the deficit with Korea worsened by $0.5 billion. (It actually improved with most other countries.)
The biggest piece of the deficit in manufactured goods is in the category of vehicles – autos, trucks, buses and parts. In this category, we have five major trading partners: Canada, Germany, Japan, Korea and Mexico. Of these, Canada is our best partner. From December to January, our balance of trade with Canada in autos and parts swung from a $0.19 billion deficit to a $0.14 billion surplus. (We basically have a balance of trade with Canada.) Of the remaining four, with whom we have a deficit in this category, the biggest percentage decline in the deficit from December to January was with Germany, with the deficit falling from $1.46 billion to $0.69 billion. By far, the most parasitic of these partners is Japan who, in January, exported $2.76 billion worth of autos to the U.S. while importing only $0.07 billion worth of autos from us. And Korea isn’t much better, exporting $0.86 billion worth of autos while importing only $0.04 billion. With Mexico, the deficit in this category declined from $1.84 billion to $1.14 billion. (In January, we imported $1.93 billion in this category from Mexico while they bought $0.79 billion from us.)
It’s very good news that our trade deficit has fallen by over 40% in the last year. This decline could help limit the depth of the recession. The bad news is that all of the decline is a function of the recession, including the decline in oil prices, and is not due to any corrective action by the U.S. This, coupled with the fact that the jobs-destroying component of the deficit has declined very little, will also tend to limit the potential for a real economic recovery. In fact, as long as the deficit continues, the financial health of the U.S. will continue to deteriorate. Eventually, interest rates will have to rise to keep attracting money for lending from our foreign creditors. This is when the economic savvy of Obama’s administration will really be tested – when he’s faced with the choice of accepting a permanent, higher level of unemployment and a lower standard of living for Americans, or taking tough action to restore a balance of trade with nations unwilling to bear the cost of their own overpopulation.