America’s yawning deficit on trade in goods narrowed slightly in April, new figures have shown.
As President Donald Trump fired the first shots in a trade war with the outside world, slapping tariffs on steel and aluminium, the US Census Bureau reported that the goods deficit in April stood at $68.2 billion, down $400 million, or 0.6%, on the $68.6 billion seen in March.
Tensions escalate in world commerce
Inventories, the growth or decline of which can be important indicators of the direction of the economy, were positive. Advance wholesale inventories were up slightly in April compared with March, at $629.4 billion from $629.2 billion, a rise of 0.03%.
Compared with April 2017, they were up 5.6%, against an annual rise of 3.9% in March.
Advance retail inventories rose 0.6% in April compared with March, to $633.5 billion from $630 billion, and were 2.5% higher than in April 2017, against an annual rise of 1.6% in March.
America’s trade deficit is of long standing and is made possible, in part, by the reserve currency status of the dollar.
The marginally better trade numbers come against a background of escalating tensions in world commerce. On 29 May, the White House carried out a long-standing threat to put tariffs on imported steel and aluminium from China, the European Union, Canada and Mexico. The Trump tariffs were justified on national security grounds, which gives an opt-out from World Trade Organisation (WTO) rules.
“Protectionism, pure and simple”
But experts say the supposed Trump China tariffs, amounting to 25% on steel and 10% on aluminium, will have little effect on the Asian economic superpower, given what the Financial Times described as the negligible quantity of Chinese steel being exported to the US.
Instead, the EU and America’s two partners in the North Atlantic Free Trade Area (NAFTA), Canada and Mexico, will suffer the full brunt of the tariffs. The EU has made it clear it will retaliate. Jean-Claude Juncker, president of the European Commission, said the EU would proceed with plans to impose duties on a range of US products, including motorcycles and peanut butter.
Mr Juncker added: “This is protectionism, pure and simple. Over the past months we have continuously engaged with the US at all possible levels to jointly address the problem of overcapacity in the steel sector.
“Overcapacity remains at the heart of the problem and the EU is not the source of, but on the contrary equally hurt by it. That is why we are determined to work towards structural solutions together with our partners.”
The tendency of steel to glut the market has been a problem for decades. One reason is that the “sunk” cost of a steelworks is so large that it can make sense to continue to turn out products even when there is little demand and they are barely profitable.
President Trump continued to emphasise the Chinese dimension to his tariffs, in a statement on 29 May. He said: “For many years, China has pursued industrial policies and unfair trade practices – including dumping, discriminatory non-tariff barriers, forced technology transfer, over capacity, and industrial subsidies – that champion Chinese firms and make it impossible for many United States firms to compete on a level playing field.”
The White House added: “President Trump has taken long overdue action to finally address the source of the problem, China’s unfair trade practices that hurt America’s workers and our innovative industries.”
There was no specific mention of the EU, Canada or Mexico but one reference to “other countries” alleged, like China, to be engaged in “injurious trade practices”.
EU is set to retaliate
Previous presidents have talked tough on trade – President Ronald Reagan threatened to hold up Japanese cars indefinitely at the dockside – but eventually came around to supporting the multi-lateral world trading system built up since the war, originally under the auspices of the General Agreement on Tariffs and Trade and then the WTO. Mr Trump, by contrast, seems genuinely to believe that America is “losing” the trade game either because others are not playing by the rules or because the rules themselves are rigged against the US.
EU trade commissioner Cecilia Malmstrom said, as the tariffs were announced: "Today is a bad day for world trade. We did everything to avoid this outcome. Over the last couple of months, I have spoken at numerous occasions with the US Secretary of Commerce.”
“I have argued for the EU and the US to engage in a positive transatlantic trade agenda, and for the EU to be fully, permanently and unconditionally exempted from these tariffs. This is also what EU leaders have asked for. Throughout these talks, the US has sought to use the threat of trade restrictions as leverage to obtain concessions from the EU. This is not the way we do business, and certainly not between long-standing partners, friends and allies.”
Mr Juncker added: “The US now leaves us with no choice but to proceed with a WTO dispute settlement case and with the imposition of additional duties on a number of imports from the US. We will defend the Union's interests, in full compliance with international trade law."