The trade deficit in manufactured goods soared to $62.9 billion in March, obliterating the previous record of $52.1 billion set only two months earlier. Here’s the chart: Manf’d Goods Balance of Trade. The overall trade deficit also hovered near its record level. The deficit is far worse than expected and will almost surely result in a revision to 1st quarter GDP that will put the economy in contraction.
The port slowdown on the West Coast that was resolved in mid-March is surely to blame for some of the sudden jump, but not that much. To blame the port slowdown on a sudden, big jump in imports also suggests that it should have made up for a slow-down in previous months. Look again at the chart. There’s absolutely no evidence of any slowdown. The trade deficit had continued to worsen at a steady pace in the months leading up to March.
Normally, such a big jump in the deficit could be explained by a robust economy that was gathering steam, driving a demand for imported products. But that’s not what’s happening. The economy slowed in a big way in the 4th quarter of last year and then either completely stalled in the 1st quarter of this year or actually contracted.
Some may blame the strong dollar, claiming that it hurts exports and makes imports more affordable to American consumers. However, exports in March were at the same level that they’ve been at for over three years. (So much for the President’s promise of doubling exports.) And an exchange rate-fueled shift toward imported products vs. domestically manufactured products only makes sense if the price for imported goods has actually been cut. Can anyone cite any examples of such price cuts? (Remember, oil is not a manufactured product.) Also, a big demand for imports would also be corroborated by a jump in consumer spending data. There’s been no such jump.
What’s actually happening is that the pace at which manufacturing is shifting overseas is accelerating, which is exactly what should be expected when free trade policy continues to be applied to badly overpopulated nations.
Though it rarely does, the stock market reacted to the trade data with a big drop over concerns about the decline in GDP that would result. I find it puzzling that an economy and political system so focused on growth continues to tolerate a huge trade deficit knowing that it’s a major drag on growth. Why is it that economists and political leaders and the Federal Reserve, who are willing to try every trick in the book to fuel economic growth, turn a blind eye to the one thing – fixing our idiotic trade policy – that’s assured to do more than all other remedies combined to make our economy grow?