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May Trade Report Shows Steel Tariffs Beginning to Bite; More Trouble Ahead
This morning’s Commerce Department trade report for May contains only the slightest hint that the world is about to see its first real trade war in decades. U.S. imports and exports are near record highs, but if you look closely enough at some specific product categories and duty collections, there are growing signs that trouble is brewing.
If we look at broad trade flows, there is nothing through May that would indicate that trade policy has changed in any meaningful way under President Trump. Total U.S. exports of goods and services continued their upward trend in May, reaching a record high $215.3 billion. Total U.S. imports reached $258.4 billion, the second highest monthly total ever. The trade deficit for goods and services in May was $43.1 billion, down from earlier in the year but still higher than the average monthly deficit of $41.8 billion during President Obama’s last year in office.
Year to date through May, total U.S. exports were up 8.8 percent compared to the first five months of 2017. Total U.S. imports were up an almost identical 8.6 percent during the same period, and the total goods and services trade deficit was up 7.9 percent.
All this is good and normal for an expanding economy. Americans are trading more with the rest of the world while the U.S. economy continues its steady if unspectacular expansion. This morning’s monthly employment report from the Bureau of Labor Statistics shows another 213,000 net jobs were added in June, while employment in the manufacturing sector was up another 36,000 from the month before. Under President Trump, the U.S. economy has gained an average of 20,000 manufacturing jobs a month, compared to the more modest gain of 8,000 per month during Obama’s second term.
The one area where we can begin to see Trump trade policies showing up in the trade numbers is steel imports and duty collections. In Exhibit 8 of this morning’s Commerce Department report, the dollar value of imports of iron and steel mill products fell by more than 10 percent in May compared to April, from $2,036 million to $1,820 million. In Exhibit 1s, under the broader category of “Primary Metal Products,” the value of imports was down 2 percent from the month before, but Customs duties collected were up 359 percent, from $38.1 million to $175.1 million.
The drop in steel imports and the spike in duty collections coincides with the 25 percent duty the Trump administration slapped on imported steel in March as part of its Section 232 action. The initial action temporarily excluded a number of our major trading partners, but on June 1 the Section 232 steel tariffs were extended to imports from Canada, Mexico, and the European Union, which should show an even bigger impact on the June trade report due to be released August 3.
All this only confirms that President Trump is playing with fire as he imposes unjustified duties on our major trading partners. Along with the steel tariffs and the retaliation they have provoked, the Trump administration just today began imposing duties on $34 billion in imports from China in a sledge-hammer effort to force China to improve its intellectual property practices. China in turn immediately imposed duties on $34 billion of U.S. exports, with President Trump threatening further duties on $200 billion or more of Chinese imports. We can expect to see the impact of the expanding trade war in the July trade report due out on September 5.
Taken together, today’s trade and employment reports beg the question of why President Trump is so intent on his reckless confrontation with all our major trading partners. The U.S. economy is performing well by any standard during a time when our trade with the rest of the world, both imports and exports, has been humming along at near record levels. Why would the president gamble with a potentially destructive trade war when the economy is already producing strong growth and healthy job creation across the board, in manufacturing as well as the service sector?
If those trade disputes are not solved peacefully through negotiations, we can expect grim reading in the trade reports to come in the months ahead — and it is only a matter of time before the disrupted trade flows will be reflected in the broader performance of the economy.
Photo credit: Jacquelyn Martin/AP/REX/Shutterstock