The annual U.S. trade deficit is on track to top $1 trillion for the first time, based on my analysis of Census Bureau data released Thursday.
It only topped $900 billion for the first time in 2020.
Here are six other highlights of the data, which covers the first six months of the year:
- U.S. trade should set a record at about $4.35 trillion, the third year in the last four that total exports and total imports will have topped $4 trillion.
- Mexico is likely to capture the crown for the second time in three years as the United States’ top trade partner, slipping ahead of China, which through six months, even trails current No. 2 Canada.
- U.S. trade is up 23.64% when compared to the same six months of last year – during the worst stretch for trade of the Covid-19 pandemic – and a solid 5.86% from the previous record year, 2019.
- The United States is likely to set this record for trade with the vast majority of former President Trump’s tariffs against China, and possibly Europe, still in place, suggesting their limited impact in slowing U.S. imports. Supply-chain disruptions – in lumber, in computer chips, in availability of dock workers due to illnesses, in people willing to return to previous, less-desirable jobs– are proving to be more inflationary than tariffs, which were in place prior to the current run of inflation.
- The two fastest-growing among the nation’s top seaports, airports and border crossings when compared to the first six months of the pre-pandemic 2019 are two airports, Chicago’s O’Hare International, its trade up 35.69%, and New York’s JFK International, its trade up 28.18%. O’Hare, which imports a great deal of pharma from Europe and high-tech from Asia, ranks second to the Port of Los Angeles. JFK, which is a large gold exporter in traditional years, ranks fourth, trailing the nation’s leading border crossing, Port Laredo. Laredo, of course, sits on the border with Mexico and handles about one-third of all that trade.
- The fastest-growing top U.S. trade partner is Vietnam, its trade up better than 50% from the same six-month period two years ago. The U.S. deficit with Vietnam through the first six months of 2021 is larger than the deficit for the full year of 2018.
Consequently, Vietnam will be a big part of the reason that the United States’ deficit will have likely topped $1 trillion when annual data is released early next year. Through the first six months, it stood at $496.55. Imports tend to increase in the second half of the year, which includes the Christmas shipping season.
What about China?
Yes, the largest U.S. deficit is with China, far and away. But China, which draws most of the ire from those who abhor deficits – a list that does not generally include economists and policy wonks, who blame America’s savings habits – is not what’s driving the U.S. trade deficit up. In fact, the U.S. deficit with China will be the lowest since 2014, excluding the pandemic-influenced year of 2020.
Not so with Vietnam. The U.S. deficit with Vietnam through June topped $42 billion, third behind China and Mexico, both much larger trade partners with more balanced trade. That $42 billion total is more than the total for the entire year of 2018, just three years earlier, when it was $39.53 billion.
The U.S. deficit with Vietnam surpassed the deficits with Japan and Germany in 2020. This year, it is bearing down on the U.S. deficit with Mexico, which fell just shy of $53 billion year-to-date.
Why is the deficit increasing?
There has been and still is a lot of money in the pockets of consumers and businesses, thanks to the largesse of the U. S. Congress and its efforts to stave off the ill effects of the Covid-19 pandemic on the economy, and to the Federal Reserves’ interest rate and other policies, with the same goals. Those efforts have succeeded, perhaps too well.
The economy continues to grow rapidly, though it is perhaps beginning to show signs of slowing, with demand outpacing the supply chain’s ability to keep up, leading to inflation.