The idea that America doesn’t make anything the world wants has become so ingrained in the popular consciousness it’s practically an aphorism. But the numbers tell a much different story. America makes plenty of stuff the world wants: grain, oil, machines, and services like education and tourism. In June, the Commerce Department reported on Tuesday, exports hit a record high of $191.1 billion—up 3.2 percent from last June. And because imports fell, the U.S. trade deficit shrank 22.4 percent to its lowest monthly level since October 2009, $34.2 billion. A decline of nearly $10 billion from May’s $44.1 billion figure, the June trade deficit is also lower than experts anticipated. A Bloomberg survey of 72 economists had a median prediction of $43.5 billion.
This isn’t just academic. When America exports more and imports less, it pushes economic growth up. Rising exports bear witness not only to America’s continuing relevance in the rapidly changing global economy, but to the ability of American firms to compete. The trends in the balance of trade suggest a nation making progress toward greater energy independence, but with possibly troubling weakening of consumer demand. June’s 2.5 percent decrease in imports of goods and services was mostly driven by reduced import levels for industrial supplies and materials, including gasoline, and consumer goods. Exports of goods and services increased by 2.2 percent, with growth in aircraft engines, telecommunications equipment, heavy machinery, and farm goods.
The data also bear witness to a shifting economic relationship with China, which is responsible for a huge chunk of the trade deficit. In June, imports from China fell 2.2 percent from May and exports rose by 4.5 percent. As a result, the trade deficit with China fell 12.4 percent from May to $26.6 billion. It’s large, but shrinking.
Earlier this year, The Wall Street Journal reported that as wages in China increase (private-sector wages were up 14 percent in 2012), increasing manufacturing costs are driving companies to countries like Bangladesh, Cambodia, and Vietnam. Larger household incomes will increase costs, but they will also likely drive consumption levels and consumer demand as the Chinese economy finds a new balance. Of course, tracking the changing U.S.-China relationship is no simple task, especially since China’s trade surplus numbers can be inflated by fake transactions. China is expected to release data on trade and industrial output later this week.
The stronger-than-expected U.S. trade numbers will figure into the government’s estimate of second-quarter GDP growth to be released on August 29, initially estimated last week at an unimpressive 1.7 percent by the Commerce Department. The data painted a favorable picture of U.S. oil production and a bleaker one for domestic demand, with a major decrease in the purchase of consumer goods. Strong oil and natural-gas production recently pushed the Houston area into the spot of No. 1 goods-exporting area in the United States, bypassing New York in what some have called a sign of the U.S. economy’s shift toward energy.
Thanks to increased domestic production, the seasonally adjusted trade deficit for petroleum products in January through June was down 21.4 percent compared with the same period in 2012. Petroleum exports are down about 15 percent year-over-year. Greater energy independence and a narrowing trade gap are good news. The bad news? The likely upward revision of second-quarter growth has intensified fears of the Federal Reserve’s scaling back its asset repurchase program, which entails a monthly purchase of $85 billion a month in assets until the end of the year.