U.S. trade deficit falls in March

Reuters ^ | May 11, 2005

[RWR8189]

WASHINGTON (Reuters) - The U.S. trade deficit narrowed unexpectedly to $55.0 billion in March in the largest monthly drop in over three years, as exports rose to a new record and clothing and other imports from China declined, a U.S. government report showed on Wednesday.

The 9.2 percent plunge in the deficit defied Wall Street forecasts. Analysts had expected high oil prices and a flood of clothing from China to push the monthly trade gap to around $61.5 billion, which would have been a new record.

The sharp pullback in imports offered further evidence that the economy hit a soft patch early in the year, but more recent reports have shown renewed strength.

Imports of clothing, textiles and related goods from China fell 21.2 percent during March after a 9.8 percent increase in February. But imports of those products in the first three months of the year are 54 percent higher than last year, as the result of a surge in January when quota restrictions on textile imports expired.

Total imports from China declined 4.4 percent to $16.2 billion in March. That helped cut overall imports by 2.5 percent to $157.2 billion - the largest monthly drop since December 2001, the same as the trade gap.

Although imports from other major trading partners such as Canada, Mexico and the European Union rose during March, the overall tally declined as China and smaller trading partners shipped fewer consumer goods, autos and auto parts, capital goods and industrial supplies to the United States

March oil imports were the second highest on record and average prices for imported crude jumped $4.29 per barrel during the month - the largest increase in nearly 15 years.

U.S. exports, led by increased shipments of capital goods and food, feeds and beverages, hit a record $102.2 billion. U.S. exports to Canada and the European Union set record highs.

[Pondman88]

Holy cr@p--We are so doomed!!!!!

No wait, this is good news...dam.

[Red Badger]

BUSH'S FAULT!!!!

[Brilliant]

U.S. exports, led by increased shipments of capital goods and food, feeds and beverages, hit a record $102.2 billion.

Folks are always moaning about the "fact" that we don't manufacture anything any more.

"Capital goods, food, feeds, and beverages..."

Those are among the things that we manufacture, and do so competitively with the rest of the world.

[KevinDavis]

We need higher tariffs../s

[Pondman88]

Higher tariffs and raise the minimum wage. Heck we also need more govt spending...Bring It On!!!!

[Matchett-PI]

CNBC: "Futures soar. Dollar futures up. Gold futures sink."

Back on this date in March:

Kudlow On The Trade Deficit
Gold-Eagle.Com ^ | 03/11/2005 | Peter Schiff
Posted on 03/12/2005 12:19:59 PM EST by gnsbhatti
http://www.freerepublic.com/focus/f-news/1361507/posts

[snip]

To: gnsbhatti

Don Boudreaux breaks this down on his blog http://cafehayek.typepad.com/hayek/2005/03/in_his_2005_ann.html so that even an idiot will understand it. The question is: are there any out there that have a lower than idiot IQ?

Don't Bet on Buffett's Economics

In his 2005 annual letter to his Berkshire Hathaway shareholders, Warren Buffett offers his thoughts on the trade deficit.

He's a far better investor than he is economist.

Like so many others, Buffett confuses a trade deficit with debt. But as I've explained before, no way, no how is a trade deficit indentical with debt. (See here, here, here, here, here, here, here, here, and here.) [too lazy to provide all the links]

But let me address a misunderstanding that I believe I haven't yet addressed at Cafe Hayek.

.....

Buffett no doubt believes that dollars held by foreigners represent debt owed by Americans to foreigners. Only in the most irrelevant and formal sense is this belief valid. Each U.S. dollar is a Federal Reserve Note, issued by a U.S. government institution (the Fed) and formally redeemable by that U.S. institution. But redeemable for what? Answer: another Federal Reserve Note of the same value.

In fact, dollars held by foreigners are not debt in any economically relevant sense.

"But can't foreigners spend these dollars on U.S. goods, services, or assets?!" I hear someone (Buffet, perhaps) asking. Of course dollars can be spent in this way; that's the only reason foreigners accept dollars in exchange for the things they sell. But this fact doesn't make dollars debt.

Suppose my next-door neighbor in Virginia agrees to mow my lawn for $10. He mows my lawn and I immediately give him a $10 bill. No debt is created. I owe my neigbor nothing; my neighbor owes me nothing. My neighbor can now spend this $10 bill on whatever he chooses. I no longer have this $10 to spend.

Does anyone worry that my neighbor has an additional $10 bill in his wallet that he might whip out at any time to buy something priced in dollars? This $10 can indeed be used as a claim on ten-dollars worth of U.S. output or assets. But it ain't debt. No one owes my neighbor anything as a consequence of his ownership of that $10 bill.

Change the example only slightly. Suppose I live, not in Virginia, but in Maine just barely on the U.S. side of the Canada-U.S. border. My next-door neighbor is a Canadian citizen living in Canada. He mows my lawn; I pay him ten U.S. dollars. As long as my neighbor holds that $10 bill, the U.S. current-account deficit is higher by $10. (I outsourced my mowing to Canada -- importing $10 worth of services from abroad.)

Is there any reason for George Bush, Alan Greenspan, Britney Spears, Don Boudreaux, Warren Buffett, Jimmy Buffett, or any one else to worry about my Canadian neigbhor holding this $10? Is the situation any different, economically, when my neighbor (and trading partner) happens to be Canadian than when he's a Virginian? Of course not.

But the Oracle of Omaha does worry. He shouldn't. And nor should anyone else.

Thanks to Andy Roth of the Club for Growth (and also a student at GMU Economics) for alerting me to Buffett's annual letter.


10 posted on 03/12/2005 12:48:53 PM EST by LowCountryJoe
http://www.freerepublic.com/focus/f-news/1361507/posts?page=10#10

[Pride in the USA]

More good news that we will never hear from the liberal media.

[Sacajaweau]

I've gotten to the point where if it says CHINA, either I look elsewhere for a comparable or simply buy food "American Food".....California is sending their good stuff to the NE now.

[brownsfan]

"...clothing and other imports from China declined..."

Could it be that the displaced manufacturing/tech workers now working for WalMart can't afford as much stuff?

[snowsislander]

It is good news; for what it is worth (and the news media seemed to determined to ignore it) last year we set a record for exports of goods. It's not great good news, since the graph still looks like:

As good as this news is (especially considering the oil situation), even better to my eye are the industrial production value and total manufacturing value numbers. After the dismal 2001-2003 years, 2004 showed some strength, and 2005 may actually be a record in nominal dollars, although I don't think it will exceed 2001 in real dollars. However, I will be glad to see even a record in nominal dollars.

The fly in the ointment for me is that it looks the federal budget is going to pass our industrial production gross value for the first time either this year or next, and at the staggering rate the federal budget is growing, it will probably pass our total manufacturing value in another 5 or so years unless manufacturing really picks up.

[Soren]

When a trade deficit of $55 billion is good news, it makes you wonder.

[Pondman88]

"When a trade deficit of $55 billion is good news, it makes you wonder"

Ya but---look at Western European countries, who run trade surpluses---their economies s-ck.

[Soren]

OTOH, Asian economies with a trade deficit > 5% GDP imploded in the 90s. Neither Europe nor Asia is a control group for the US economy, so it is difficult to draw any conclusions without considering the many other contributing factors. That being said, it's hard to see how running a trade deficit of this magnitude is healthy.

[Pondman88]

OTOH--isn't their some old joke about economists and OTOH????

Its all beyond me...you get myopics like Krugman and optimists like Kudlow.

[sixmil]

Trade deficits according to tariff free traders:

Going up - Must be a boom, or because China pegs its currency, or doesn't matter since you run a deficit with your grocer.

Going down - good news!?

[Toddsterpatriot]

Going down - good news!?

Because other countries are finally buying.

[Toddsterpatriot]

U.S. exports, led by increased shipments of capital goods and food, feeds and beverages, hit a record $102.2 billion.

If you don't make nothin' you can't export nothin'.

[velyrorenry]

"hit a record $102.2 billion" do you know what our GDP is?

[John O]

How much foreign oil did we import? After subtracting out oil (a raw material) what is the real deficit?