This morning’s release of the trade data for March by the BEA showed a bit of a narrowing of the trade deficit on goods and services, from $60.6 bn in February down to $55.0 bn in March. This was due to slightly higher exports and a surprising drop in US imports.
At this point let me add the usual reminder that one observation does not make a trend; this data really gives us no clue as to whether the US trade deficit has peaked and is starting down (which I think is unlikely) or whether March was just an aberration. It’s far safer to add up or average several months of data before trying to paint a picture of what’s happening to the economy.
Today’s data release made me curious to investigate some more details about the US’s importing behavior. So I’ve put together a couple of tables that help to describe what kinds of things the US imports, and from where. First the “What?” table:
And next the “From Where?” table:
Some things on these tables may be slightly surprising to some. For example, while US imports from China are growing rapidly, the US still imports more from Canada and the EU. Consistent with that is the fact that US imports include lots of capital and industrial goods, in addition to consumer goods.
This is important to keep in mind. The first thing that most people think about when they think of US imports is cheap consumer goods from China. While there is certainly plenty of truth in that conception, it would be just as accurate to think about US imports as being composed of industrial equipment from Canada and electical machinery from Germany.
Thinking about it this way reminds us that the US’s voracious appetite for imports is not the result of low labor costs in China, but rather the result of a fundamental imbalance in which the US consumes more than it produces of virtually all types of goods. In many of the countries with which the US runs a trade deficit labor costs are actually higher than in the US, but since those countries don’t consume everything they produce the US imports from them. The cause of the trade deficit is therefore clear: it is simply the direct result of the US’s lack of saving.