With the status of U.S.-China trade negotiations in flux, an ever-increasing North American Free Trade Agreement (NAFTA) trade deficit underscores the political liability for President Donald Trump of his year-long refusal to fix and thus make viable in Congress the revised NAFTA he signed last year. Congressional Democrats have sought improved labor and environmental terms and enforcement to counter NAFTA’s race-to-the-bottom job outsourcing and elimination of new monopoly rights for pharmaceutical firms that would lock in high medicine prices.
The U.S. Trade Deficit Has Grown 15% Overall During the Trump Presidency: As a candidate, Trump pledged to bring down the massive U.S. trade deficit quickly. For the two years of his presidency the U.S. trade deficit with the world, with China and with NAFTA partners increased. The Nov. 5 release of third quarter 2019 trade data shows that the U.S. deficit with NAFTA partners increased again relative to the same period last year while the U.S.-world goods trade deficit largely stayed the same, and the U.S.-China goods trade deficit declined after annual increases in 2017 and 2018 and through much of the Obama administration.
- NAFTA deficit: As Trump has sidelined Congress’ consideration of what he calls the U.S.-Mexico-Canada Agreement (USMCA), the U.S. goods trade deficit for the first three quarters of 2019 with Mexico and Canada increased to $177 billion – up 14% compared to the same period last year. This extends a trend of growing NAFTA deficits under Trump: The 2018 annual U.S. goods deficit was up 16% relative to 2017 (from $181 billion to $210 billion), and up 30% ($49 billion) in 2018 relative to the 2016, the last year of the Obama administration. While most of the deficit is in manufactured goods, the U.S. also has an agricultural trade deficit with NAFTA partners: $9 billion in 2018 compared to a $2.5 billion surplus in 1993 before NAFTA. (Prior to NAFTA, in 1993, the U.S. had an overall $2.7 billion goods trade surplus with Mexico and a $31 billion goods trade deficit with Canada.)
- Global deficit, growing manufacturing deficit: Because U.S. service exports declined in the first three quarters of 2019 relative to the same period in 2018, the overall U.S. deficit with the world increased relative to the same period last year even as the U.S. global goods deficit ($653 billion) for the first three quarters of 2019 fell 1% compared to the same period last year. The annual 2018 U.S. goods deficit with the world ($892 billion) was larger than any year since the 2008 financial crisis – up 8% ($63 billion) over 2017 and up 14% ($108 billion) in 2018 over 2016, the Obama administration’s last year. The U.S. manufacturing sector trade deficit with the world increased 2% (from $763 to $782) between the first three quarters of 2018 and 2019.
- China deficit: The U.S. goods trade deficit with China ($265 billion) in the first three quarters of 2019 represents a decrease of 14% relative to same period last year and 4% relative to the last year of the Obama administration. The U.S. annual goods trade deficit with China in 2018 was the largest ever recorded at $428 billion, up from $392 billion in 2017. This compares to $370 billion in 2016, Obama’s last year.
Manufacturing Recession, Continuing Job Outsourcing and Government Contracts Granted to Outsourcers: Although candidate Trump’s promise to stop firms from outsourcing more jobs and to cut off government contracts for firms that outsource jobs, outsourcing has continued, and the Trump administration has granted billions in contracts to firms that outsourced U.S. jobs.
- Government contracts to job outsourcers: Twenty-six percent of the top 50 U.S. government federal contractors in FY 2018 were certified by the U.S. Department of Labor as having engaged in job outsourcing. This totaled $685 billion in U.S. federal government contracts in 2018. The flow of federal contract awards to major outsourcers has continued in 2018, with General Electric and Boeing, for instance, receiving awards despite having U.S. Department of Labor certified job-outsourcing records of 10,511 and 7,271 jobs, respectively.
- Outsourcing and manufacturing job loss: Outsourcing has continued under Trump, with net manufacturing job losses in key 2020 swing states. This includes many well-known U.S. firms, not only the case of United Technologies’ Carrier and other firms Trump spotlighted on the campaign trial. This includes service sector firms like Thompson Reuters, AT&T, Dunn and Bradstreet and Ministry Health and manufacturing firms including AT&, Boeing, Caterpillar, Electrolux, General Electric, Harley-Davidson, Honeywell, Kohler, Nabisco, Siemens, and Verizon have all outsourced jobs during the Trump administration. As well, General Motors expanded production in Mexico while shutting down five U.S. manufacturing facilities and cutting 15% of its domestic workforce.
Manufacturing Jobs in States Trump Won by Less than 5 Percent
Change in jobs from January to September 2019
|State||Job losses or gains||Trump’s 2016 margin of victory|
Sources: Bureau of Labor Statistics, Federal Election Commission
- Manufacturing recession: Overall, the U.S. manufacturing sector made gains in the first two years of the Trump administration, but in 2019, that began to reverse. The manufacturing sector is now technically in recession; as measured by the Federal Reserve, manufacturing output shrank over two straight quarters this year, the common definition of a recession. By October 2019, a key measure of industrial activity – the Institute of Supply Management’s Purchasing Manager’s Index, which is a monthly survey of manufacturing – had sunk to its lowest level since June 2009 when it 47.8 (below 50 indicates contraction). Subcategories of export orders, employment and overall new orders were especially weak.
- Downward pressure on wages: The Bureau of Labor Statistics reports that manufacturing workers who lose jobs to trade and find reemployment are typically forced to take pay cuts. Two of every five rehired in 2018 were paid less in their new jobs. One in six lost greater than 20% of their income. That means an $8,200 pay cut for the median-wage worker earning $41,360.
Hard Times in Farm Country: Ongoing trade disputes have compounded the challenges caused by six years of falling prices in agriculture. Estimated net U.S. farm income in 2018 was 50% of 2013 levels, with median farm income at -$1,548. Despite their best efforts, many farmers are struggling to stay afloat and increasingly must rely on nonfarm income.
- USMCA cannot counter $15 billion China market access losses: Nationwide, $15 billion has been lost in U.S. agriculture exports just to China in the past year. USMCA, if enacted, would not make a dent in these losses because it would simply continue NAFTA’s existing duty-free treatment with very modest increased access for U.S. dairy, poultry, eggs and wine to the Canadian market. (It also provides Canada additional access to U.S. markets for dairy, peanuts and sugar and products containing these commodities.) The total prospective USMCA gains for all U.S. agricultural exports to Canada projected by the U.S. International Trade Commission (ITC) is $450 million with a miniscule 1,700 new jobs added in agriculture over the full period of implementation. To put this into perspective, annual 2018, U.S. ag exports were $20 billion to Mexico and $24 billion to Canada.
- No guarantees against future trade chaos: If it is enacted, the revised NAFTA would not stop future erratic and unpredictable Trump trade actions. Months after USMCA was signed, and boosters claimed it would lock in a new era of certainty in North American trade, Trump threatened to impose new tariffs on all Mexican imports for immigration-related reasons.
[Figures are adjusted for inflation to the base month of September 2019. Thus, the figures represent changes in trade balances expressed in constant dollars. So, for months prior to September 2019, the numbers are different than the data unadjusted for inflation that is provided by the U.S. Census Bureau.]