America’s Trade Trouble Will Continue

livemint.com:

The U.S. trade deficit has been narrowing, and that has been a plus for the U.S. economy.

But it is still far wider than it was before the pandemic hit. Odds are that it is going to stay that way for a while. The Commerce Department on Wednesday reported that the U.S.

trade deficit was a seasonally $65 billion in July, versus $63.7 billion in June. This was narrower than the $68 billion economists expected, and, additionally, the June figure was revised lower. As a result, gross domestic product in the second quarter might be a little stronger than what has been reported, and third-quarter GDP growth looks healthier than what economists have been penciling in.

Last year the trade gap was a lot wider, with the deficit averaging $79.3 billion each month. But that remains a far cry from the last year before the pandemic, even after adjusting for inflation. In 2019, the deficit averaged $46.6 billion a month.

The ballooning deficit has come from a confluence of factors. A big one has been the increased preference for goods over services, both in the U.S. and abroad.

In the U.S., for example, Commerce Department figures show that inflation-adjusted consumer spending on goods was 17.3% higher in the second quarter than in the final quarter of 2019. And even though consumers have continued to re-engage in activities such as travel and going to the movies, spending on services was just 5.4% higher. Services are mostly homegrown, but the U.S.

imports a lot of goods. Moreover, one big area where the U.S. is an exporting powerhouse is services and that hasn’t done as well.