The Census Bureau released foreign trade data for the month of July this morning, and the results were far worse than forecasts. Consensus among economists was that the deficit would worsen slightly, rising from $27.0 billion in June to $28.0 billion in July, with the high end of expectations being $29.5 billion. Instead, the actual July trade deficit soared to $32.0 billion! (The above link will take you to the full report.)
Exports rose slightly, but the rise was dwarfed by a rise in imports. The rise in imports was led by non-petroleum goods (in other words, manufactured products), rising by over $6 billion. Auto imports led the way, fueled by the “cash-for-clunkers” program.
This was the worst one-month increase in the trade deficit since 1999.
Since our last trade surplus in 1975, our cumulative trade deficit (in current dollars) has risen to $9.55 trillion, every penny of which has been financed by a sell-off of American assets.
These trade results are a slap in the face for President Obama, whose jaw-boning of other nations like Japan, Korea, China and Germany resulted in promises by them to rely less on exports and to stimulate their own domestic economies. But these results are predictable. These nations will never, ever reduce their reliance on exports voluntarily. They won’t because they can’t. If I’ve said it once, I’ve said it a thousand times, the ONLY way to eliminate the global trade imbalances that collapsed the economy – the only way for the U.S. to restore a balance of trade – is through tariffs.
The Obama administration, as well as the Federal Reserve, knows full well that the trade deficit lies at the heart of all of our economic problems. I predicted that Obama would, for some time, try the traditional mamby-pamby, Mr. Nice Guy approach to the trade problem, trying to convince other nations to fall on their own swords and fix our problem for us. This July trade deficit figure is the clearest evidence to date that that approach is a failure. The August figure will be even worse, since the “cash-for-clunkers” program was primarily in August, and foreign car-makers were only then scrambling to boost depleted inventories.
How much worse does it have to get before Obama acts? Will he sit by and do nothing while our deficit slowly returns to the pre-recession levels? If he does, he’ll go down in history as another place-holder, do-nothing president who didn’t have the courage to do right by the American people.