If the U.S. economy is going to recover from the coronavirus recession, it will have to do so without much help from overseas.
Americans have resumed buying imported goods with nearly as much enthusiasm as before the pandemic. But people in other countries are not returning the favor.
The resulting gap between what the U.S. purchases from other countries and what it sells to them — the merchandise trade deficit — hit a record in August. A broader Commerce Department measure that includes services, scheduled for release on Tuesday, is also expected to reach a new high.
The nation’s export performance is unlikely to improve anytime soon.
After narrowing earlier this year as the pandemic arrived on American shores, the goods deficit swelled in recent months. Aggressive U.S. crisis-fighting efforts that gave some consumers $1,200 stimulus checks and enhanced unemployment benefits fueled a surge in imports, while weak demand from abroad left U.S. exports depressed.
“There doesn’t seem to be any real bright spot that’s going to drag us out of this long, hard slog,” said economist Megan Greene, a senior fellow at Harvard University’s Kennedy School of Government.
Economies in Europe, Japan, Brazil and India all will suffer deeper recessions this year than the United States. U.S. output is expected to drop by 4% in 2020 while Europe will experience a roughly 7% decline, according to S&P Global Ratings. And the outlook through the first half of next year is for more of the same, economists said.
“The recession is truly global in nature,” said Gregory Daco, chief U.S. economist with Oxford Economics. “Every country was impacted. Every country has seen a decline in demand.”
Among major economies, China is alone in seeing activity largely return to normal. But the Chinese government has responded to the pandemic by boosting exports rather than spurring domestic consumption. So unlike in 2009 when a Chinese stimulus helped lift other nations out of recession, Beijing this time is providing little help for the global economy.
“Last time, China dragged us all out of recession. This time around, it hasn’t really happened,” said Greene.
U.S. imports have virtually recovered their pre-pandemic high thanks to the $2 trillion economic package passed by Congress in March, which supported consumer spending and encouraged retailers to replenish their depleted inventories.
But anemic foreign demand is hurting capital goods producers, auto companies and industrial suppliers.
Boeing in August delivered four commercial aircraft to airlines outside the United States, down from 11 in the same month last year, according to the company’s website.
Caterpillar said this summer that it expected sales in the three months that ended Sept. 30 to be 20% lower than in the same period last year, as export prospects for its tractors and trucks remain dim.
And Snap-on’s toolmaking division saw one-quarter of its foreign orders disappear in the first half of the year, reflecting weakness in Britain, Canada and Australia, a spokesman said.
Few analysts anticipate early improvement in the economic situation beyond U.S. shores.
In Japan, 7% of large manufacturers reported “favorable” business conditions in Thursday’s Tankan survey. Through the first half of 2021, growth in Mexico, the top U.S. trading partner, and the euro area probably will remain weaker than in the United States, according to Barclays.
Some exporters say they are suffering from the lingering effects of the president’s multi-front trade war. Many U.S. business groups have objected to Trump’s tariffs, complaining that they created uncertainty and invited foreign countries to retaliate with their own import barriers.
The U.S. chemical industry, which accounted for $136 billion in exports last year, faces tariffs on its shipments to China, the European Union, Turkey and India. Through July, the most recent data available, the industry’s exports were down 16% from one year ago, according to the American Chemistry Council, an industry group.
“The outlook would look better without tariffs,” said Kevin Swift, the council’s chief economist. “Retaliatory tariffs levied against our exports by major U.S. trading partners, including China, are still casting a shadow over the U.S. export sluggishness caused by the pandemic.”
The dollar is not helping.
While a temporary spike in its value caused by the pandemic faded after a few months, the trade-weighted dollar remains about 25% above its average value between 1990 and 2015, according to the Federal Reserve.
A higher dollar makes U.S. products more expensive for buyers in other countries.
With the Federal Reserve holding interest rates near zero, the dollar should be set to weaken, except that central banks in the European Union and Japan have pushed rates even lower, into negative territory.
The dollar also is being kept aloft in part by foreign capital attracted to U.S. financial markets, which are outperforming major overseas bourses. So far this year, the S&P 500-stock index has gained almost 4% while the Euro Stoxx 50, an index of blue-chip European companies, has lost almost 15%. Japan’s Nikkei index is also in the red, as is Hong Kong’s Hang Seng.
“There is a strong argument for the dollar going down,” said Torsten Slok, chief economist of Apollo Global Management. “For exports to go up, the fastest way is to depreciate the dollar.”
The fatter trade gap defies years of President Donald Trump’s tariffs on solar panels, washing machines, steel and most goods from China. The president has long vowed to close the trade deficit, which he assails as a direct transfer of wealth from Americans to foreigners.
On Friday, Peter Navarro, a White House trade adviser, told reporters that Trump had inherited a “broken global trade system” created by globalist politicians in both parties.
“It’s been a cornerstone [of] President Trump’s economic plan to fix this broken system,” Navarro said. “And if you look at what he’s done, it’s been truly remarkable by any measure.”
Any measure, that is, except for the one that the president campaigned upon.
In 2019, the trade deficit was $854 billion, more than $100 billion more than the figure recorded in President Barack Obama’s final year in the White House. And through August, the trade measure is on track to reach a similar level in 2020.