May 19, 2000

China, Europe lead growth in U.S. trade deficit

The Department of Commerce reported today that in the first quarter of 2000 the U.S. trade deficit rose 59.4% compared to the same period in 1999, its highest level on record. The overall deficit hit $86 billion in the first quarter and will reach $432 billion for the entire year if it continues to grow at the current rate, a $161 billion increase over the record $271 billion deficit recorded in 1999. The growth in the deficit reflects the high rates of growth of the U.S. economy, relative to U.S. trading partners, and the continuing run-up in the value of the dollar, which has gained 4% since December 1999. It also reflects trade policies that limit the growth of U.S. exports and inflate the growth of U.S. imports.

By comparison, the trade deficit with China increased by 22.8% in the first quarter of 1999. The deficit with China could reach $84 billion in 2000, an increase of $16 billion over the record $68 billion deficit recorded in 1999. The deficit with China is also growing more rapidly than the deficit with Japan. If the U.S.-China trade deficit continues to expand at current rates, it will soon surpass Japan and become the largest bilateral deficit in the history of U.S. trade.

The U.S. trade deficit with Japan and other Pacific Rim countries also grew rapidly in the first quarter of 2000. The deficit with Japan increased 16.5% and the deficit with the rest of the Pacific Rim grew 18.5%. The rapid growth in the U.S. deficit with these countries has also been stimulated by the growth of cheap exports from China to other countries in the region. Cheap inputs from China have allowed other Asian producers to increase their exports to the United States. For this reason, the U.S. trade deficit with China may understate the net effect China has on the overall U.S. trade deficit.

The U.S. deficits with Western Europe and the NAFTA countries have continued to expand rapidly in 2000. The U.S. deficit with Canada has increased by 60.5% in the first quarter, pushing up the overall NAFTA deficit by 30.6% in this period. This continues a recent trend of rapid escalation of the NAFTA deficits, which increased 69% in 1999 alone. The U.S. deficit with Western Europe increased by 91.6% in the first quarter as well. European Union countries have recently stepped up efforts to expand exports to the United States, especially in such high-wage, high-tech sectors as aircraft and other aerospace products, and they have also implemented new regulations that discriminate against U.S. aerospace imports.

The United States lost 15,000 manufacturing jobs between January and March 2000, according to the Bureau of Labor Statistics, continuing a trend established in 1998. Between March 1998 and March 2000, the United States has lost 522,000 manufacturing jobs. Job losses continue to grow because of the rapid growth of imports that compete with goods made by U.S. manufacturing industries. The largest increases in imports in March were in consumer goods such as pharmaceuticals and apparel; motor vehicles and parts, industrial supplies, and capital goods. U.S. exports also increased, but more slowly, in industrial materials, motor vehicles and parts, and capital goods. These trends are, in part, a consequence of the hollowing out of many high-wage U.S. manufacturing industries, as U.S. producers have moved a growing share of production to offshore locations in low-wage countries such as China and Mexico.

by Robert E. Scott

The Economic Policy Institute TRADE PICTURE is published upon the release of year-end trade figures from the Commerce Department.