It Might Be Time To Rethink What You Thought You Knew About Trade Deficits And Balance, Including China’s

I speak about trade around the country quite a bit and often like to ask a question that goes something like this:

“The United States trades with more than 200 countries around the world. With how many of those countries does the United States have a trade surplus?”

Maybe you have a guess.

In those audiences, some are quick to suggest none.

Some conjecture that the total is around 20. Or 40.

It rarely goes higher than that.

The correct answer is, at the moment, 130.

That’s right, the United States has trade surpluses with more countries than those with which it has trade deficits.

The deficit total, through July, according to the latest U.S. Census Bureau data, is 102.

Here’s what that looks like, in a pie chart:

How can that be, you wonder?

How can that be, when the United States registered a record trade deficit in 2018 of $879 billion?

That can be because the United States has an enormous trade deficit with China, a deficit that topped $400 billion for the first time in 2018 and was more than fives times the size of the next largest U.S. deficit.

It can be because the total U.S. deficit with just seven countries – Mexico, Germany, Japan, Ireland, Vietnam and Italy in addition to China – was equal to more than 85% of the total U.S. deficit in 2018.

Take out the 13 greatest U.S. trade deficits – add Malaysia, India, Canada, Thailand, Switzerland and South Korea to the previous list – and U.S. trade is basically balanced.

In other words, exclude just 13 nations of the world and U.S. trade is, essentially, a 50-50 proposition.

Before I get to those nations with which the United States has a trade surplus, a quick note about “trade balance” – in other words the ratio between exports and imports.

A trade deficit, or surplus, is the difference between exports and imports. You subtract imports from exports.

To determine how balanced the trade between two countries is, you switch to division. You divide exports into total trade.

When I speak to groups about trade, I often also ask this question:

“What percentage of U.S. trade is a U.S. export?”

Again, the guesses tend to be off, generally by quite a bit.

The correct answer is 40%. That’s right, for every dollar of U.S. trade last year, 40 cents was a U.S. export.

Now, how much has it deteriorated in the last two decades?

The correct answer: Not at all.

Here are the two pie charts, the first showing the ratio in 1999 and the second in 2019:

If they look similar, that’s because they are. I didn’t copy and paste and just change the headline but could have.

How can this be, given what we know about U.S. trade over the last two decades?

Over the last two decades, annual U.S. trade has grown from $1.72 trillion to $4.21 trillion.

Exports have grown from $695.80 billion to $1.66 trillion.

Imports have grown from $1.02 trillion – the first year above $1 trillion – to $2.54 trillion.

The U.S. trade deficit has grown from $328.82 billion to $878.68 billion.

It can be because the pie has gotten bigger, much bigger – meaning total trade, exports, imports and the deficit have grow – but the relative size of exports to imports is virtually unchanged.

Of course, that ratio has gone up and down a few points in those intervening two decades but not much. That’s a much harder needle to move.

By the way, what do you think the answer would have been if I had been traveling the country, speaking about the 1999 totals, and asked this question:

“The United States trades with more than 200 countries around the world. With how many of those countries does the United States have a trade surplus?”

Well, having read the rest of this column, the answer might no longer surprise you.

In 1999, the United States had trade surpluses with 124 nations and deficits with 103.

That’s right, we have “improved” on that scorecard. We have six more surpluses and one fewer deficit.

So, you are thinking, how about the balance of U.S. trade with China over the last two decades. Well, once again, you might be surprised.

Here is the ratio from 1999, first, and then the ratio thus far in 2019:

Finally, as to those countries with which the United States has the largest trade surpluses, the largest surpluses are with two “nations” that serve as transshipment hubs – the first being Hong Kong and the second the Netherlands.

The next largest trade surpluses are with Australia, the United Arab Emirates, Belgium, Brazil and Panama, Singapore, the United Kingdom and Argentina.

Ten of the top 20 are, in fact, in this hemisphere.

What’s the total of all those surpluses? At $186.46 billion, it is still equal to less than half of the U.S. trade deficit with China.

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I didn’t leave the womb thinking I would find my life’s work writing and speaking about trade data, trying to make it interesting and relevant. But this is where I find ...