You won’t find it in the headline number, but the August trade data that was released on Friday provides more evidence that tariffs work to reduce trade imbalances.
The overall trade deficit in August remained in the same tight range where it’s been for over a year, at $54.9 billion. Imports remained locked in the same range where they’ve been for a year, while exports remained at the same level where they’ve been for two years. The deficit in manufactured goods, which came in at $73.8 billion, may be showing signs of finally leveling off, although it’s too early to draw that conclusion. (Here’s a chart of that all-important trade category: Manf’d Goods Balance of Trade.)
What’s significant is what’s happening in trade with China. Through August, the trade deficit with China is on track to finish at about the same level as 2014 – $345 billion – after soaring to $420 billion in 2018. It will likely end the year even lower as companies ramp up efforts to shift manufacturing to tariff-free suppliers.
The August trade data also illustrates that all of the talk of the tariffs hurting farmers is a bunch of baloney. Through August, total farm exports are off from the previous year by less than 1%. Exports of soybeans, which gets so much attention, are actually up in 2019 to $17.3 billion from $15.3 billion during the same period in 2018.
Unfortunately, the exodus of companies from China to find other tariff-free manufacturers hasn’t yet led to a boost in manufacturing in the U.S. The trade deficit with other suppliers like Mexico, Vietnam, South Korea and others is actually getting worse as companies turn to them, their alternate, back-up manufacturers, to provide the capacity that’s been pulled out of China. That won’t change until Trump begins extending his tariff policy to those countries as well. Tariffs on all auto imports would be especially helpful. As I said last month – what’s he waiting for?