The widening rift between the U.S. deficit and Chinese surplus in trade in manufactured goods showed no sign of abatement in the fourth quarter of 2014, according to an analysis from the Manufacturers Alliance for Productivity and Innovation.
In the report, Ernest Preeg, Ph.D., notes that the U.S. trade deficit in manufactured products in the fourth quarter rose by $19 billion, or 14%, compared with 2013, and increased by $61 billion, or 12%, for calendar year 2014. Preeg estimates this led to a net loss of 425,000 American manufacturing jobs.
Meanwhile, the Chinese surplus increased by $35 billion in the fourth quarter and rose by $85 billion for the year to $998 billion, which rounds to a record $1 trillion annual surplus. Quarterly Chinese exports of $614 billion more than doubled the $302 billion of U.S. exports. This represents a dramatic change from 2000, when U.S. manufactured exports were three times larger than Chinese exports.
Overall exports double over 5 years, but manufacturing lags
"The 3% growth in U.S. manufactured exports in 2014 completes President Obama's five-year strategy to double U.S. exports, but manufactured exports were up by only 41% during that time," Preeg notes. "In stunning contrast, Chinese manufactured exports soared by 96% over the last five years."
Chinese exports in 2014 for the 10 largest high-technology industries (see chart below) were $1,135 billion, 48% larger than the $769 billion of U.S. exports, and while China had a $322 billion surplus in these industries, the United States was in deficit by $290 billion.
The largest U.S. bilateral deficits in manufacturing in 2014 were with China, at $372 billion, or 66% of the global deficit, followed by Japan at $83 billion (15%) and Germany at $73 billion (13%). The United States had a $17 billion surplus with NAFTA partners Canada and Mexico, composed of a $63 billion surplus with Canada and a $46 billion deficit with Mexico.
US leads exports in motor vehicles and aircraft, China leads in IT and machinery
There are only two industries where U.S. exports are far larger than Chinese exports. The first is “road vehicles,” which reflects the deep trade integration from longstanding North American free trade dating back to the 1965 U.S.-Canada Auto Pact. In 2014, 54% of U.S. exports in this industry went to Canada and Mexico. The second industry is “other transport equipment,” where, largely thanks to Boeing, U.S. exports grew by $11 billion in 2014, compared with a $2 billion decline for China.
The two categories of industries where China is moving ahead are the machinery and IT sectors. For the three machinery industries, listed 2-4, U.S. exports rose by $7 billion in 2014, to $177 billion, while Chinese exports were up by $15 billion, to $179 billion, and thus China passed the United States for the first time.
Far more important are the three IT industries—office and data processing equipment, telecommunications and sound recording, and electrical machinery and appliances—where Chinese exports in 2014 of $781 billion were more than three times larger than the $217 billion of U.S. exports. Moreover, and again not shown in the table, China had a $308 billion surplus in the three industries, compared with a U.S. deficit of $213 billion.
What are the consequences? According to Dr. Preeg, “Overall, U.S. export competitiveness with China in high-technology industries has been in substantial decline, except for Boeing, and slowing or reversing this trend will be an important objective for U.S. trade strategy ahead. The results raise questions as to what lies ahead for 2015 and beyond. There are some reports of expected improvements in U.S. export competitiveness, but, on current course, I wouldn’t bet my overvalued dollars on a reduction of the deficit in 2015.”
Jobs and exports by the numbers
U.S. exports of manufactured goods in the fourth quarter, compared with 2013, as shown in Table 1, were up by 4%, imports were up by 7%, and the trade deficit surged by $19 billion, or 14%, to $157 billion. This $19 billion deficit increase equates to a net loss of about 130,000 American manufacturing jobs for the quarter.
In the other direction, Chinese manufactured exports in the fourth quarter were up by 9%, imports rose by 5%, and the surplus surged by $35 billion to $294 billion, or also by 14%.
These fourth quarter figures continue the pattern of growing trade imbalances for both countries during the course of the year, a trend that accelerated sharply during the fourth quarter. The December figures also complete the calendar year trade accounts, and the remainder of this quarterly MAPI Foundation report on U.S. and Chinese trade in manufactured goods focuses on the calendar year results.
Table 2 presents U.S. and Chinese trade in the same format as Table 1 for calendar years 2013 and 2014. U.S. exports for the year grew by only 3%, while Chinese exports grew twice as fast—by 6%.
Chinese exports for the year were $2,228 billion, or 88% larger than the $1,188 billion of U.S. exports, and were more than double U.S. exports in the fourth quarter, as shown in Table 1. This doubling will continue to widen in 2015 as Chinese exports continue to grow faster than U.S. exports. Imports, in contrast, rose 6% for the United States compared with a slower 4% growth for China.
These contrasting export and import growth rates produced continued rapid growth in the U.S. deficit, up by $61 billion, or 12%, to $562 billion for the year, while the Chinese surplus, up by $85 billion, or 9%, to $998 billion, rounds off to an extraordinary annual surplus of $1 trillion.
The net loss of American manufacturing jobs from the $61 billion increase in the deficit was about 425,000. Moreover, 2014 was the fifth consecutive year of sharply rising deficits, equating to a five-year net loss of 1.7 million jobs, or about 10% of the sectoral labor force.
A decisive characteristic of U.S. and Chinese exports of manufactures is their concentration in technology-intensive industries, which have strategic importance for national productivity growth and for their connection with defense industry. Table 3 presents U.S. and Chinese exports of the 10 largest high-technology export industries, which in 2014 accounted for 67% of total U.S. manufactured exports and 51% of Chinese exports. If smaller high-technology industries were included, well over two-thirds of U.S. manufactured exports and well over half of Chinese exports would be in the high-technology category.
In 2014, for the 10 industries, Chinese exports of $1,135 billion were 48% larger than the $769 billion of U.S. exports. Also, not shown in the table, China was in a very large surplus of $322 billion for the 10 industries, while the United States was in a very large deficit of $290 billion, so the pattern for total manufactured exports of a very large U.S. deficit and a very large Chinese surplus carries over for high-technology industries.
Finally, the pattern of U.S. bilateral trade balances in manufactured goods is very revealing, as shown in Table 4. The overriding deficit is with China, with a $372 billion deficit in 2014 that equated to 66% of the global deficit. The other two Asians listed—Japan and South Korea—accounted for an additional 15% and 6%, respectively, for a big three Asian total of 87% of the global deficit.
The deficit with the three largest members of the Eurozone—Germany, France, and Italy—is also large, and has been growing over the past several years. The largest deficit in 2014, by far, was with Germany, at $73 billion, or 13% of the global deficit, but the deficits of $13 billion with France and $23 billion with Italy were also noteworthy. In broader terms, these Eurozone trade surpluses with the United States are an important part of the large Eurozone current account surplus. In contrast, U.S. trade in manufactured goods with the United Kingdom, not a member of the Eurozone, is in welcome balance, with a $1 billion U.S. surplus in 2014.
The entries for NAFTA partners Canada and Mexico deserve special attention in view of recent criticism in the United States about the regional free trade relationship. For manufactured goods, the United States, in 2014, was in trade surplus with NAFTA partners by $17 billion, with the $63 billion surplus with Canada more than offsetting the $46 billion deficit with Mexico.
Equally noteworthy is the aggregate size of trade within North America, and thus the mutual gains from trade by all parties. U.S. exports of manufactures of $421 billion in 2014 were two and a half times larger than exports to China, Japan, and South Korea combined, and triple U.S. exports to the four listed Europeans. In relative terms, the U.S. deficit with Mexico was a moderate 25% of exports to Mexico, while the deficit with China was an astounding 450% of U.S. exports to China. NAFTA is thus a success story for free trade in manufactures, although this has also resulted in a progressively deeper concentration of U.S. exports to North America, compared with exports to Asia or Europe.1
The MAPI report can be found here