U.S. Trade Deficit: Not as Ominous as it Sounds

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AHEAD OF THE TAPE: Trade Picture Brightens

• Summary: Today's trade number is predicted to show a July trade-deficit increase from $64.8 to $65.5 billion, ostensibly frightening. But there are numerous reasons why the picture might not be as bleak as it appears: 1) The shortfall in oil accounts for 30% of the total trade-deficit. From June to July, the price of imported petroleum products increased by 4.7%. Since then, oil prices have dropped more than 10%. 2) There is a 10% decrease in inbound cargo volume compared to last summer, suggesting a shift in the import/domestic product ratio. (Less-optimistic reasons: Rising European demand is delaying U.S. orders; supply-chain improvements allow retailers to order later; retailers may be ordering less in anticipation of reduced spending.) 3) Continued Asian growth should keep U.S. exports strong.
• Comment on related stocks/ETFs: One of the huge beneficiaries of the U.S. trade-deficit is China. Driven by a 33% surge in exports, their July trade-surplus came in at a record $18.8 billion, and $95.65 billion ytd. This has lead some to call for a market-determined yuan, the assumed strength of which would balance trade by making Chinese goods more costly and imports more affordable. David Andrew Taylor asks: Why hasn't the dollar collapsed amid a crippling trade deficit? His answer: With the proceeds from the goods we buy overseas, our beneficiaries invest in our financial markets. Phil Davis argues: When you're the richest guy in the bar, do you worry about the drink-deficit if you buy an extra round or two? No one should be surprised that the richest country in the world by a factor of 4 spends and extra 4% of their GDP on imports. Even Barron's Marc Chandler goes to great lengths to dispel the dollar/deficit myth. Speculators can play the dollar vs. deficit using the Euro Currency Trust ETF (FXE), which mirrors the euro's movement (short-sale rules do not apply to ETFs).

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Comments

[MichaelRingold]

I'm sure it's of interest to some, but bringing up the deficit as something scary I think is just politics. The trade deficit is just a tiny, tiny thorn in the side of GDP calculations, with growth in the other far more important categories completely swamping it. It'd be nice to have it positive, but only in the same way it'd be nice to have a higher valued currency; vague bragging rights, not any real substantive advantage.

[AmesTiedeman]

The U.S. Trade Deficit is a huge problem. We will either end up being owned by foreigners or we will simply fade away. Both prospects are quite un-
American. Some basic facts: The U.S. has not had a trade surplus with the world since 1974. We have not had a trade surplus with Japan since April of 1976. We stopped having trade surpluses with Eurpoe in 1983. Fifteen years ago we did not have a trade deficit with China. Now we have a 250 Billion a year deficit with the People’s Republic. A nation that does not make anything is a worthless nation. Worse, the longer we go without making the needed investments in our manufacturing infrastructure, the more knowledge we lose. We will either forget how to manufacture or we will simply not be good at it. Our creative energy fades away if we do not use it. Also, it is innate to want to make things. Kids play in sand boxes, youg men build tree forts. This is human nature. All of this is being taken away from the American people by idiots in Washington who do not know how to make trade deals. I may write a book on this topic.