Maine Pointe CEO Steve Bowen is cited in this Barron's article, addressing the role the pandemic has played in the growth of imports. Steve suggested that while Americans are stocking up on consumer goods, home improvements and food, the pandemic has also depressed exports at the same time due to persistent supply chain challenges.
U.S. Trade Deficit Hits 14-Year High
Oct. 6, 2020 12:37 pm ET
The trade deficit grew in August to its highest level since 2006, potentially undercutting a key piece of President Donald Trump’s reelection campaign—that his policies have made the U.S. less reliant on foreign goods.
The deficit rose to $67.1 billion in August, up from $63.4 billion in July. Exports rose on a month-over-month basis, but imports rose even more. Year to date, the trade deficit is up 5.7% above last year’s levels.
Covid-19 has certainly had an impact on international trade and the performance of different countries. On a relative basis, the U.S. is ramping up imports more than exports. Greg Daco, the chief U.S. economist at Oxford Economics, said there’s a “stronger pull for imports” for multiple reasons.
The federal stimulus bill helped put money in the pockets of Americans, boosting consumer spending—much of which is going to goods made elsewhere. And other countries have not seen the same level of stimulus, causing their appetite for U.S. goods to remain depressed, Daco said.
In the U.S., a rebound in manufacturing has also caused imports to increase as factories order parts and equipment. And U.S. businesses are now stocking up on inventory, which had been low.
The Trump campaign didn’t respond to a request for comment.
Steve Bowen, CEO of Maine Pointe, which consults with companies on supply chains, said that Covid-19 has driven much of the growth in imports, as Americans have stocked up on everything from home improvements to recreational goods to food. The pandemic may also be depressing exports because disruptions from the virus have caused new supply-chain challenges at big companies.
U.S. policy changes don’t appear to have shifted the larger dynamics. Trump has used tariffs to try to reduce the trade deficit and as a retaliation tactic against what he calls other countries’ unfair trade practices. But some economists argue that tariffs aren’t effective in reducing deficits—instead, they often depress overall trade and act as a tax on consumers.
“Protectionism doesn’t reduce trade deficits,” Daco argues. “If anything, it keeps them unchanged and increases the cost of activity for everyone. This assumption that because you impose tariffs or other forms of protectionist measures you’re going to force your importers to stop importing and instead force your domestic producers to produce the equivalent is simply a myth.
“We do not have as an economy and as businesses the capacity to suddenly replace all the imports with similar types of products of the same quality and nature that is required by international global supply chains.”
The deficit with China did fall to $29.8 billion in August, compared with July’s deficit of $31.6 billion. It was also below the deficit of the previous two Augusts. Trump’s Phase One trade deal with China signed earlier this year may be having an impact on that number, with China agreeing to buy more U.S. goods, such as soybeans.
Under the deal, China has been “maneuvering some of its imports away from other countries towards the U.S.,” Daco said. It isn’t clear whether those gains will last, however. China agreed in January to increase its purchases of U.S. goods and services by $200 billion over a two-year period. Beyond that, the two countries will have to go back to the negotiating table.
Avi Salzman at firstname.lastname@example.org