The Donald will be talking about it. Bernie will be, too. Probably to a lesser extent, but so too will Hillary and Jeb, probably even Ted and Marco.
Iowa and New Hampshire are less than a month away. We will be debating many things during the upcoming political season but one where the level of discourse has the potential to be substantive — not always, maybe not even most of the time — is U.S. trade policy.
Two triggers: With the release of annual U.S. trade statistics right between the Iowa caucuses and the New Hampshire primary, we will see that for the first time, China will be the United States’ top trade partner and that the U.S. trade deficit will increase.
More than any other two words, “China” and “deficits” tend to boil the blood of the anti-trade crowd.
They need not.
China will replace perennial No. 1 Canada as the nation’s top trade partner not because of a flood of imports from the former — the refrain most commonly bandied about — but because of the global collapse of oil prices.
For the last decade, since surpassing Saudi Arabia and Venezuela as the chief supplier to the United States, Canada has become an increasingly dominant source. Through the first 11 months of 2015 — released just last week — the value of oil imported into the United States was down a remarkable 49 percent. But Canada’s market share is up, to a record 37 percent.
That’s because oil imports from the following countries were down more than 50 percent in value: No. 2 Saudi Arabia, No. 4 Mexico, No. 6 Kuwait, No. 8 Iraq, No. 10 Angola and No. 11 Nigeria. Imports from No. 3 Venezuela were off 48.75 percent from the first 11 months of 2014.
But there is a larger story as well. And that is U.S. exports to China. Over the last decade — the first 11 months of 2005 compared to the first 11 months of 2015 — U.S. trade with China has increased 111.50 percent, or more than double the rate of U.S. trade with the world. But U.S. exports have increase 186.47 percent in that time compared to 68.52 percent for all U.S. exports. Chinese imports, meanwhile, have increased 99.06 percent, nearly three times the rate of all imports.
What does this mean? It might not sound like much, but when you are talking billions of dollars, it is: For every dollar of trade with China in 2005, 14 cents was a U.S. export. Today, that is 19 cents. That’s better than a 35 percent increase in what I like to call the “balance of trade,” or the percentage of exports divided by total trade.
It is different from the trade deficit — exports minus imports — which can increase even as the balance of trade moves toward greater equilibrium.
That is, in fact, what is happening with China. Total U.S. trade with China, total exports, total imports and the U.S. trade deficit will set a record when annual figures are released next month — but not the balance of trade.
The No. 1 U.S. export is the category that includes aircraft. China is the top market. The No. 3 U.S. export is motor vehicles. China is the No. 2 market. The No. 4 export is cellphones and related equipment. Believe it or not, China is the No. 4 market.
China accounts for more than 40 percent of all U.S. exports of soybeans, ranked No. 16 overall. China buys more than 50 percent of all the United States’ scrap paper, copper, aluminum and zinc.
But, as China’s share of U.S. trade has increased — from 11.06 percent in 2005, the last year it would rank behind Mexico — to 15.96 percent in 2015, its share of the U.S. trade deficit has ballooned as well. (Canada, by the way, accounted for 19.50 percent of all U.S. trade a decade ago.)
There is no denying the size of the U.S. deficit with China. The total U.S. deficit through November of last year was $677.15 billion. The deficit with China alone was $337.81 billion. The next largest deficit is with Germany at a relatively paltry $67.46 billion. While China’s “balance of trade” has increased to 19 cents on the dollar, the U.S. average is 40 cents. Parity is a long, long way off.
While it is not reasonable to ignore or run from the size of the U.S.-China deficit, there are several intelligent ways to contemplate it. To be sure, there are the U.S. exports that are rising more rapidly than imports. In addition, and most commonly cited, is the savings to the U.S. consumer and to U.S. business from lower-cost and improved clothing, technology and cars.
And, because the deficit with China is so large, and because the deficits with Mexico, Canada, Japan and Germany are large, it is easy to overlook the fact that the United States has trade surpluses with more nations than deficits. Through the first 11 months of 2015, the total stood at 132 U.S. surpluses and 102 deficits.
But, the U.S. deficit this year will only be the highest since 2012 and not yet close to the deficits of 2005 through 2008. Looking at the 10 years before 2015, four deficits are lower and six higher. As far as the balance of trade, which I favor, only two years will have even been higher — 2013 and 2014, when the percentage was 41 cents of every dollar as a U.S. export. The 2015 total, when the annual data is released, right after the Iowa caucuses and the New Hampshire primary, will be 40 cents.
Reach Ken Roberts, president of World City, at kroberts@worldcity web.com. Twitter: @tradenumbers
China sits atop ranking of U.S. trade partners
Nov. 2015 YTD
Source: WorldCity analysis of U.S. Census Bureau data