June Trade Deficit: Still Enormous, Humongous – And Unsustainable

Dave Johnson

The U.S. Department of Commerce has released U.S. trade figures for June. The numbers show some improvement from the previous month, but the trade deficit is still humongous.

The overall monthly U.S. international goods and services trade deficit declined 7% to $41.5 billion in June, down from $44.7 billion in May (revised). The trade deficit subtracted 0.61 percentage point from growth in the April-June period.

  • Imports of consumer goods were down $1.3 billion.
  • Imports of automotive vehicles, parts, and engines were down $1.1 billion.
  • Imports of industrial supplies and materials were down $500 million.
  • Imports of capital goods were down $300 million.
  • Petroleum imports dropped to a 3-1/2 year low, falling to $27.4 billion, from $28.3 billion in May.
  • Exports of consumer goods were up $400 million from May.
  • Food, feeds and beverages imports hit a record high, increasing by $200 million from May.

The monthly U.S. goods deficit with China was $30.06 billion, up from $28.84 billion in May. According to the Alliance for American Manufacturing (AAM) “This is the third highest-ever monthly goods deficit with China, and only the third time that this bilateral trade gap has exceeded $30 billion in one month.”

This is an improvement, going from an enormous, humongous level to a still-enormous, humongous level. Bloomberg News analyzes this, saying,

Demand for goods made overseas will probably rebound in coming months, helped by growing consumer spending and business investment. Exports, although the strongest on record, were little changed from the prior month, a sign markets overseas will represent less growth for American factories as Europe’s economy struggles to pick up and geopolitical tensions mount.

What Does This Mean To Us?

A trade deficit means that we buy from others but they do not buy the same amounts from us. This imbalance translates US demand (and dollars) into jobs, factories and wealth elsewhere. A job is lost here, and a factory closes here. A job is gained there (at a much-lower wage and with unsafe conditions) and a factory opens there (with few if any environmental controls.)

A trade deficit drains our economy and forces consumers, businesses and government to borrow, just to keep going. The increasing trade deficit is the core cause of our national economic imbalances since the late 1970s/early 1980s. As manufacturing migrates out of the country, wages are forced down,  and entire regions are devastated. (Have you looked at Detroit or Cleveland?)

The cause of this trade deficit is one-sided trade deals that intentionally force jobs and manufacturing out of the country in order to place “capital” at an advantage over “labor.” Jobs and facilities are moved to countries that allow exploitation of people and the environment. The goods are returned here to be sold in the same stores, but to a population that increasingly has to borrow to buy them.

When unemployment is high and there’s a large number of long-term unemployed of people willing to take any job offered, people are afraid and unwilling to ask for raises and improvements in working conditions. America gets poorer as high-wage jobs here are replaced by low-wage jobs there. A few people at the top (here and there) pocket the difference. This translates to higher corporate profits for those companies positioned to take advantage of this.

Unsustainable

As Yogi Berra says, “If something is unsustainable it can’t be sustained.” Of course at some point the country’s consumers population will no longer be able to consume (as happened in 2008). But that will not occur in this quarter, which is what matters to those benefiting from this imbalance. The Wall Street saying for this situation is IBG YBG, or “I’ll be gone, you’ll be gone.” (“I’ll have gotten my commission; you’ll have sold out to the next guy; neither of us will be held accountable.”) Anyway, if that happens, the government can bail out the banks again and everything will be fine, right?

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