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MAPI Report: U.S. Deficit on Track to Increase by $60 Billion

The surge in the U.S. trade deficit in manufactures in the second quarter of 2014 and the increase in the Chinese trade surplus shows the countries have resumed their opposite growth paths, according to an analysis from the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation (MAPI).

In the report, Ernest Preeg, MAPI senior advisor for international trade and finance, notes that U.S. manufactured exports grew by only 3 percent to $304.6 billion in the second quarter compared with 2013. The U.S. deficit in manufactures rose by $21.6 billion, or 19 percent compared with the second quarter of 2013. This followed an 8 percent increase in the deficit in the first quarter.

Conversely, Chinese exports were up 6 percent to $549.3 billion in the second quarter. Its trade surplus increased by $20 billion in the second quarter over 2013, or by 9 percent, and reversed an 8 percent decline in the first quarter.

“China is clearly pursuing an export-led growth strategy to stimulate lagging GDP growth, including very large official foreign currency purchases to lower the exchange rate, and is achieving robust industrial growth, much if not most of which is for export,” Preeg wrote. “These sharply divergent trends for the dominant trading sector, which account for 75 percent of U.S. merchandise exports and 95 percent of Chinese exports, raise important questions about the trade policy course ahead.”

Although the U.S. added 28,000 manufacturing jobs in July, Preeg estimates a potential increase to $60 billion in the U.S. deficit this year in manufactures, which would mean a net loss of approximately 400,000 jobs in the American manufacturing sector.

“U.S. manufactured imports from China in the second quarter of 2014 of $110.5 billion were five times larger than the $20.7 billion of U.S. exports to China, with a resulting deficit of $89.8 billion,” Preeg noted. “This amounts to 66 percent of the global deficit.”

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