U.S. Trade Deficit in March Reduced by Import Slowdown, not "Export Boom"
Alan Tonelson
Tuesday, May 20, 2008

The official U.S. March, 2008 monthly trade figures showed that a major slowdown in imports continues to drive the U.S. trade deficit’s recent stabilization. The new quarterly figures revealed that, although export growth rates finally breached historic highs in early 2008, the surge was led by commodities, not manufactured goods.

The overall U.S. trade deficit shrank by a noteworthy 5.68 percent in March, falling to
$58.21 billion from the adjusted February level of $61.71 billion. Exports actually fell for the first time since January 2007 – by 1.71 percent, to $148.51 billion. But the much higher value of imports dropped by an even faster 2.86 percent, to $206.72 billion. The fall-offs were especially sharp in goods trade – where exports sank by 2.37 percent, to $104.73 billion, and imports declined by 3.36 percent, to $173.34 billion.

But the biggest import decline – 5.94 percent – was registered by oil, depressing the chronic U.S. oil trade deficit by 5.72 percent to $30.38 billion, despite continually soaring crude prices.

Both exports and imports, by contrast, rose in manufacturing. But a robust 6.24 percent jump in exports, to $80.85 billion in March, sent that sector’s longstanding deficit down by 5.88 percent, to $42.29 billion. The volatile trade deficit in Advanced Technology Products dipped two percent, to $3.27 billion.

U.S. trade with its leading economic partners served up numerous surprises in March. First and foremost, the U.S. merchandise trade deficit with China plummeted by nearly 12.50 percent, to $16.08 billion. Not only did U.S. goods exports to the People’s Republic increase by just over 10 percent, but imports also sank by slightly more than seven percent – possibly reflecting early 2008 weather-produced transport disruptions in China.

Although the goods deficit with Canada remained virtually unchanged, the U.S. goods deficit with the third NAFTA signatory, Mexico, jumped 8.68 percent, to $5.97 billion. A 3.08 percent increase in the U.S. goods deficit with the Euro-zone was led by a stunning 13.67 percent increase in goods imports from Germany, while the merchandise deficit with Japan rose by 8.91 percent largely due to a one percent decline in exports.

The official quarterly figures made clear that not until the period Jan.-March 2008 did export growth play a dominant role in halting the U.S. trade deficit’s rapid recent widening. Total export growth (including goods and services) of 12.63 percent in 2007 was impressive, and clearly contributed to the $50 billion (6.59 percent) fall in the overall deficit that year. Yet the U.S. economy has bested that performance twice over the past decade, and recorded five total years of double-digit export growth during that period. In fact, the 2007 percentage gain was slightly less than the 2006 growth rate of 12.68 percent.

Not until the first quarter of 2008 did U.S. export growth break out of that zone, recording a 17.58 percent increase. In fact, the 1Q 2008 figure topped the 1Q 2007 figure of 10.23 percent growth by nearly 72 percent.

The big 2006-7 change in U.S. trade flows came on the import side, where growth plummeted from 10.35 percent to 6.02 percent. The 2007 single-digit figure represented a level of import growth not seen since the recession year of 2001 (when total imports actually fell 5.54%) and its immediate aftermath (2002, when total imports rose only 2.07 percent).

The quarterly numbers since 1Q 2005 reveal the same trend. Total imports grew 12.78 percent from 1Q 2005 to 1Q 2006, but only by 4.53 percent from 1Q 2006 to 1Q 2007. Import growth rebounded to 12.02 percent in 1Q 2008. But all of that increase came from higher oil prices.

In fact, the U.S. import-growth collapse story becomes clearest when oil trade is stripped out. U.S. non-oil goods import growth nosedived from 9.14 percent in 2006 to 4.48 percent in 2007 – a decline greater than that witnessed for total imports. And the decline has continued to accelerate, from 4.96 percent import in1Q 2007 to only 3.26 percent in 1Q 2008.

The real causes of the trade deficit’s stabilization are also apparent from recent changes in absolute import and export levels. Total export growth during the ostensible “boomâ€