MarketWatch reports that the U.S. trade deficit “jumped 8.7% in June to a 10-month high of $44.5 billion, reflecting the higher cost of oil and more imports of consumer goods such as cellphones and drugs.”
The deficit increased because imports rose by $227.7 billion, while exports were up only $183.2 billion, with particularly sluggish oil and new-car exports. The trade gap with China hit its highest mark since last November, thanks to heavy imports of “Chinese-made computers, cell phones, and clothing,” per ABC News. On the other hand, U.S. exports to the European Union and United Kingdom were up.
Reuters notes June was the third straight month to see an increase in the trade deficit. Economists predicted a much smaller deficit of $43.1 billion by the end of June, compared to the inflation-adjusted $64.7 billion that was realized.
Reasons cited for the unexpectedly high trade deficit included higher demand for consumer goods – which MarketWatch suggests is a signal that “Americans are still spending at a pace consistent with a fairly healthy, albeit slowly, expanding economy” – a $5.19 per barrel rally in oil prices, and the U.S. dollar regaining strength after the Brexit vote. The Associated Press cites economists who “do not expect a large impact on the U.S. economy from Britain’s decision to leave the E.U.” going forward.
The oil price spike, in particular, was the largest one-month increase in over five years, and the fourth straight month in which oil prices rose. The AP notes that before that trend began, oil prices had fallen low enough to push the value of imports down, and keep this year’s trade deficit 2.3 percent below the equivalent period in 2015.
“Republican presidential nominee Donald Trump, seeking to tap into the economic anxiety of Americans who have seen jobs disappear in an increasingly global economy, has accused the Obama administration of failing to protect U.S. workers from unfair trade practices in China and other countries,” the AP notes, adding that Trump’s proposals include exiting from the North American Free Trade Agreement, killing the Trans-Pacific Trade Partnership agreement, and taking a more aggressive approach with China.
In addition to the question of disadvantageous trade policies, the new trade deficit report spotlights the importance of oil – a fickle beast whose price fluctuations can help or hinder the economy in various ways. In this case, it seems clear that falling oil prices reduced the value of imports, and since those prices have probably begun recovering from rock-bottom levels, the trade deficit may well grow as oil comes back.
ZeroHedge writes extensively on another trouble spot: the accumulation of debt in the United States, which seems to be leaning more towards consumer goods purchases (as indicated by the reports that consumer demand is driving the trade deficit up) than productive investments for the future. Furthermore, a growing trade deficit suggests those U.S. consumer purchases aren’t creating as much profit for domestic industries – profit that could be recycled into investment and growth – as we would like.
Under this theory, America’s consumer debt load might be financing more purchases and pushing the trade deficit up, but it also stymied the economic growth that would normally have been associated with low oil prices. As ZeroHedge puts it, debt is “simply a way to bring what would be future consumption into the present,” and when the future finally gets here, it will have already been strip-mined.
As for public debt, former Federal Reserve Chairman Alan Greenspan suggested in a conference call on Wednesday that the federal government ought to be running a hefty surplus of at least 3% of GDP, not monstrous deficits, in order to “build up funds to pay for retiring workers.”
That would mean annual surpluses in the $500 billion range, which most certainly will not happen under anything resembling Obama-style government. And if America’s trade deficit grows worse, doesn’t that mean we’ll have even less commerce to tap in our future tax base, making the retirement crisis Greenspan predicts even worse?