Trade Deficit Surges During the Recession

The trade balance hit -$63.6 billion (monthly, seasonally adjusted) in July. The trade balance has been deteriorating since the recession began, in contrast to what usually happens — an improvement in the trade balance, as imports decline with a decline in domestic economic activity.

Figure 1: Trade balance of goods and services (blue), in millions of dollars, seasonally adjusted, on a balance of payments basis. NBER defined recession dates shaded gray; assumes last recession ended in April. Source: Census via FRED, NBER, author’s calculations.

So another stylized fact bites the dust during the Trump administration.

And, pretty unambiguously, the trade deficit has increased since Mr. Trump took office.

37 thoughts on “Trade Deficit Surges During the Recession

  1. pgl

    Here is the link to the Census data just in case the Usual Suspects (Bruce Hall, CoRev, etc) try to argue Menzie has misrepresented the data (he hasn’t).

    Now the weak economy has lowered imports but exports are way down. It seems Trump’s trade policies have backfired big time.

    Of course I’m comparing exports in July 2020 to exports in July 2019. Our lying Usual Suspects might note that July 2020’s exports were higher than June 2020’s exports so to quote Trump “we’ve turned the corner”. And yes I fully expect Bruce Hall to repeat this stoooopid and dishonest argument.

    1. Bruce Hall

      Hi, pgl. How was that 7th cup of espresso this morning?

      If there is anything “normal” about the last six months, it is your snarky take on things.

      Let’s connect the dots:
      • worldwide epidemic emanates from China
      • infections in the U.S. spread out from New York City
      • Democratic Party cites the need to shut down the economy in order to save everyone
      • the economy tanks and domestic production falls due to shutdowns
      • data shows that the most vulnerable are 65-years old and older
      • Democratic Party governors put infected people with others in nursing homes (Whitmer still hasn’t change her policy on that)
      • U.S. forced to import more of its needed products because Democratic Party governors want to keep everyone safe
      • New York/NYC still have about as many deaths as Florida, Texas, and California combined
      • small businesses out of business; employees not employed
      • “mostly peaceful protests” are deemed critically important by Democratic Party mayors and police departments are prevented from restoring order because these “mostly peaceful protests” are perfectly safe
      • it’s all Trump’s fault

      Okay, got that part covered. China infects the world, Democratic Party shuts down U.S., U.S. buys materials from China because Democratic Party shut down U.S. Easy as 1-2-3.

      1. Menzie Chinn Post author

        Bruce Hall: Let me restate in context your points:
        – Pandemic comes to NYC via Europe
        – It spreads because the Federal government abdicates any attempt to test-and-trace
        – US forced to import PPE because Trump administration lets pandemic stockpile expire (after killing off the overseas pandemic monitoring programs – good job!)
        – PPP kept many firms afloat, but ends as Senate wants to go with $1 trn and no more package (who is majority in Senate?)
        – documented spreads and resultant surges of infections comes with *indoor* events like at Tulsa (who pushed that?)
        – Trump further abdicates role in the “state handoff”, and then returns to dismissing pandemic as a “hoax” and/or something that will disappear “like a miracle” (or just plain not mentioning the 180K thousands dead

        There. Fixed it for you.

        1. pgl

          You can’t do that to quote Donald Trump when the reporter rejected his deaths per cases BS and stated deaths per capita. Now we all know Bruce Hall is allergic to accurate presentations of reality. He gets this from Trump.

      2. pgl

        “How was that 7th cup of espresso this morning?”

        Rather than object to your usual juvenile crap, let me note to you that I was out for a run at 4:45 am. Social distancing is easier than way. You on the other hand was probably wetting your bed. I guess your mommy had to do laundry once again.

  2. pgl

    “And, pretty unambiguously, the trade deficit has increased since Mr. Trump took office.”

    Soybean exports are way down as are their prices relative to when this dumb trade war bit. Of course CoRev has been telling us that soybean prices will one day return to $10 per bushel. Yea – once President Biden ends this stupid trade war.

    1. Menzie Chinn Post author

      Not Trampis: Because macro dominates micro (tariffs), expansionary fiscal policy, appreciated dollar due to Trump-induced policy uncertainty and consequent flight-to-safe-assets have pushed the trade deficit higher.

      1. Not Trampis

        okay but every country had expansionary policy. My country’s was much more expansionary than yours for example.
        The other two are fine.

        1. macroduck

          It is the change in the national saving rate that is relevant in thinking about change in the trade balance. The U.S experienced a decline in the overall rate because of the decline in the government component. If your country (Australia?) didn’t increase it’s fiscal deficit or offset that increase with saving in some other sector, you would not expect to see the trade balance shift toward deficit.

          1. pgl

            Current account = national savings MINUS investment.

            Remember the late 1990’s. National savings rate actually rose a wee but investment boomed.

            Of course under Donald John Trump investment sucks even after that 2017 tax cut that was supposed to lead to an investment boom.

  3. rjs

    this is goofy, but i have real exports of goods increasing at a 90.9% rate from the 2nd quarter in July…..see Exhibit 10 in the full pdf for the report:

    that shows monthly exports in 2012 dollars, and by that metric, the 2nd quarter real exports of goods averaged 113,766 million monthly….July’s exports were at 133,728 million in that same 2012 dollar representation…hence, (133,728 / 113766 ) ^ 4 = 1.909, or an increase at a 90.9% rate…

    i also get July’s real imports increasing at a 71.0% rate…

    please check my numbers, but from here it looks like 3rd quarter GDP is going to be even more outlandish than the 2nd quarter was…

    1. rjs

      speaking of the 2nd quarter, trade figures going back to January were revised with this month’s report, which on net left the 2nd quarter trade deficit $9.6 billion higher than was previously reported, suggesting a large downward revision to 2nd quarter GDP, the magnitude of which depends on the 1st quarter revisions…that revision is on the order of ten times what we’d normally see…

      1. Willie

        Meaning that the hole we are in is deeper than we thought? Guess we should stop the digging in November.

    2. rjs

      ok, that 90.9% SAAR increase in July’s real exports isn’t as crazy as it sounds; the reasoning is the same as for the 36.6% SAAR increase in real PCE…that kind of change is going to be common in the 3rd quarter because an increase from a very low level is a much higher percentage change than an equivalent decrease from a high level…exports of goods fell at a 66.3% rate in the 2nd quarter, but an increase at a 90.9% rate from that level only makes up about 60% of the 2nd quarter’s drop…

      1. pgl

        A simple analogy. Something declines by 50% from period 1 to period 2. Then from period 2 to period 3, it rises by 50%. Net change is not zero. No – from period 1 to period 3, this something has declined by 25%.

        But hey – Trump can count on Kudlow to tout this something as being higher than ever. When one does math after taking cocaine, it makes perfect sense.

    3. pgl

      OK after a yuuuuge decline – there is a partial rebound. This is like CoRev’s nonsense on daily COVID-19 deaths. After a big jump in July we see August not quite as bad as July. So we have “turned the corner” per Trump, Bruce Hall, and CoRev. Standard rightwing data manipulation.

      1. rjs

        it’s not really “data manipulation”; it’s just simple math…if a metric falls at a 50% rate in the first period, a recovery to the previous level in the next period will be a 100% increase….and that’s the way the BEA will report it on October 29th, just days before the election..

  4. Moses Herzog

    How many Republicans in the U.S. House and Senate would be making the TV rounds hammering this point endlessly if a Democrat was in the White House with the graph above?? Where are the Democrat lawmakers on the above issue?? I guess Pelosi is eating salon ice cream priced like flakes of gold and Schumer must be at a Manhattan or D.C. kosher deli somewhere pretending he cares about eviction numbers. Gee, I wonder why rural people hate Democrats?? I just can’t figure it out for the life of me……..

    Maybe sammy, Bruce Hall, CoRev, or the great [gasping in awe!!!!] Rick Stryker can tell us the reasons for the drastic increase in the trade deficit under donald trump?? Maybe Rick can tell us how many standard deviations below the norm negative $63 billion is vs say, negative $40 billion??

  5. Dr. Dysmalist

    IIRC, most of our larger export markets were hit by the pandemic before we were, and most of them had a more effective shelter-in-place program than we did, and we started opening up relatively sooner (too soon) than they did. So (again, IIRC) most of them had larger relative drops in GDP than we did. To me, that means that it’s not a surprise for their demand for imports (our exports) to fall proportionally more than our demand for imports. If my thinking on this is wrong, somebody knowledgeable please correct me.

    1. Moses Herzog

      @ Dr Dysmalist
      I’m not sure I consider myself “knowledgable” on international trade. However, I would say that time lags in the effect of COVID-19 probably had little effect on what happened, but rather the effects of the virus in their entirety. But I am willing to be persuaded, if someone can show me some graphs or tables, or regression or something that can show me the “timing” or “lag” in one place to another made a difference. Again, I am willing to be persuaded on this, as in international trade there are so many variables and “moving parts” involved. But I would still label myself highly cynical on your timing contention.

      I’m guessing the IMF research arm might be a good place to peck around on this question. But I am too lazy at the moment. PIIE has some good stuff on this sometimes, and Brad Setser might have some thoughts.

    2. Moses Herzog

      @ Dr. Dysmalist
      WSJ is saying exports grew 8% in July, vs imports growing 11% in July. Now the levels are obviously different but if you look at the graph the two lines move in near unison (by “near in unison” I mean the gap between the two lines doesn’t change much), so, you’re gonna have a hard time selling me that when one is only growing 3% faster than the other (for the month of July) that there’s a big gap in between countries’ activity (on average) because of shutdowns. Otherwise the movement in between the two lines wouldn’t correspond so closely. I think that 3% possibly might relate more to the exchange rate during that time.

  6. spencer

    Remember, the trade balance is the difference between two very large numbers, so an unusual move in either exports or imports can generate a very large change in the balance.

    Moreover, because imports are so much larger than exports if both have the same percent change it will cause the balance to increase.

    The real Trade deficit rose from $82, 296 ( 212 $) in the second quarter to $90,487 (212 $)in July .
    So we are starting the third quarter with the real trade deficit 9.95% larger..

  7. spencer

    Most of the improvement in the trade deficit over the last few years was due to fracked oil exports.

    Now that fracking is no longer profitable –Schlumberger just sold its fracking operations –that improvement
    is likely to reverse. Interesting .

    1. rjs

      speaking of fracking, there is a syndicated column that’s been appearing in small town newspapers throughout Appalachia the past few days that’s titled “Fracking Insanity” that starts like this: The coronavirus won’t destroy America’s energy industry. But Democrats might. Progressive lawmakers like Senator Bernie Sanders have long called for a nationwide ban on fracking. But even Joe Biden, the “moderate” Democratic nominee, seemed to embrace this radical idea.

      the response to that message is simple: fracking activity is already down nearly 90% with Trump as president…

      more responses are needed…

  8. macroduck

    The widening in the U.S. trade deficit during this recession is an anomaly. The U.S.deficit usually shrinks during recession. One more difference this time around.

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