An Interesting Trade Tidbit

Posted by: Michael Mandel on October 21

In 2000, Japan had a $42 billion trade surplus in motor vehicles and parts with the U.S. In 2007, Japan’s motor vehicle trade surplus with the U.S. was

a) $18 billion
b) $35 billion
c) $43 billion
d) $55 billion

(answer beneath the fold)

The answer is (d) $55 billion. Despite Honda's and Toyota's assembly plants in the U.S., the U.S. trade deficit with Japan in motor vehicles and parts was $55 billion in 2007.

Here's how the 2007 trade deficit breaks down, by NAICS code. I'm surprised that the motor vehicle trade deficit is so high.

trade balance, 2007
billions of dollars
oil and natural gas -272
motor vehicles and parts -124
electronics -123
apparel and textiles -113
petroleum products -46
misc (including toys and jewelry) -44
metal refining -41
pharmaceuticals -35

The oil and gas deficit will fall as prices decline. What other categories of the trade deficit are likely to decline?

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Reader Comments

LAO

October 21, 2008 07:49 PM

I have suspected for some time that auto workers' anti-NAFTA cries are legitimate, at least from their point of view. Mountains of stacked vehicle chassis spied on any random freight train aimed roughly from Mexico to Detroit over the last several years lend credibility to that piece of the deficit.

Oil and gas are commodities that might tend to exhibit an exaggerated response to demand shrinkage, and they are no doubt also down because the dollar has exhibited some intermittent relative strength. There is no guarantee, however, that OPEC will allow the price to stagnate at a lower level.

Vehicles and parts, petroleum products, and metal refining have a high energy component, including significant transportation costs, so import prices will no doubt respond somewhat in sync with oil/gas prices.

Otherwise, I would expect deficit growth or shrinkage to depend primarily upon the strength of the dollar and the demand impact of the credit crisis. The dollar may grow weaker yet, which would tend to drive import prices upward. The question is whether demand shrinkage will more than offset any dollar weakening.

My best guess would be that demand shrinkage will dominate and drive deficit reduction in every category listed, except pharmaceuticals, which will continue to grow.

I am not completely ignoring the export side of the deficit. Even though a weakening dollar would make U.S. exports more attractive, I would not expect the U.S. to easily re-enter any essentially lost industry, rather I would at best expect some minor pick-up in production for domestic consumption that would serve to slightly reduce the trade deficit.

Joe Cushing

October 21, 2008 09:11 PM

I thought we were a major exporter of pharmaceuticals. Are we outsourcing them?

Kartik

October 22, 2008 07:13 PM

Electronics will decline. The consumer has learned that by waiting 6-9 months, the product he intends to buy will be 20-30% cheaper. In good times, instant gratification may prevail, but in tough times, this is one area where waiting is guaranteed to translate into a solid increase in purchasing power for the consumer.

So electronics will shrink, since that is the category where waiting the bang for the buck of waiting is the most.

Pharmaceuticals will be the most stable. That is the area where people do not have the option of delaying purchase.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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