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Changes in the U.S.-China trade deficit

Exports and imports before and after tariffs and the pandemic

Many of the trade policies that began in 2018 were driven by the high and persistent U.S. trade deficit with China. For example, the U.S. announced tariffs on solar panels and washing machines from China in January 2018, which is marked by the first vertical line in the FRED graph above. Several rounds of U.S. tariffs followed, and China enacted retaliatory tariffs.

We start our graph in January 2016 to include data before and during the period when these trade policies were initiated.*

The basic story told by the graph is that U.S. exports to China (in blue) seem to be relatively stable over time, but U.S. imports from China (in red) are more variable and also much larger. So, the bilateral trade deficit (in green), which is the excess of imports over exports, seems to follow the variable path of imports. Despite the trade war, the trade deficit peaked in October 2018. It fell after that for a few months, only to rise again above its January 2016 level by the middle of 2019.

These facts seem to suggest that the trade war didn’t achieve any significant, durable difference in the U.S.-China trade deficit. How the deficit will evolve in the future, of course, will depend on a whole host of factors, including consumption behavior and the evolution of comparative advantage in each nation.

The second vertical line on the graph marks the first COVID-19 case reported in Wuhan in December 2019. In the months that followed, there was a sharp decline in imports from China to the U.S. and also in the bilateral trade deficit.

Interestingly, since March 2020, there has been a sharp turnaround in imports and the U.S.-China trade deficit. Among other factors, this turnaround in imports may be related to imports of essential medical equipment, described in an Economic Synopses essay by Leibovici and Santacreu.

With the easing of lockdowns in the U.S. and growth in China, there also seems to be a recent spurt in U.S. exports to China, which rose to its highest level in October 2020. Indeed, because of this increase in exports, the U.S.-China trade deficit in October of 2020 is a bit lower than its level in July 2020.

Overall, COVID-19’s effect on U.S.-China trade seems somewhat surprising, with a strong rebound of trade in the relatively early months of the COVID-19 crisis in the U.S., followed by a further strengthening of trade in more recent months when the U.S. economy has seemed to be on a path to recovery.

*By the way, the numbers shown here are nominal (i.e., not adjusted for inflation). It’s a good idea to pay attention to this distinction when interpreting data, but we found that “real” numbers based on the U.S. CPI deflator here don’t lead to any qualitative differences.

How this graph was created: Search for and select “U.S. Exports of Goods by F.A.S. Basis to Mainland China.” From the “Edit Graph” menu, use the “Add Line” tab to search for “U.S. Imports of Goods by Customs Basis from China.” For the dotted line, use “Add Line” again to search for and select “U.S. Imports of Goods by Customs Basis from China.” Then in the “Customize data” section, search for “U.S. Exports of Goods by F.A.S. Basis to Mainland China.” Next, create a custom formula to combine the series by typing “a-b” and clicking on “Apply.” To add the vertical lines, refer to these instructions. Finally, use the “Format” tab to adjust the format of the graph.

Suggested by Subhayu Bandyopadhyay and Praew Grittayaphong.

View on FRED, series used in this post: EXPCH, IMPCH


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