Trade wars, tariffs and other disruptions
The Trump administration’s views on international trade are very different from previous administrations. Donald Trump took on the role of disruptor, particularly with the United States’ three largest trading partners: Canada, Mexico and China. With Canada and Mexico, Trump at first threatened to scrap the North American Free Trade Agreement (NAFTA), but settled on renegotiating and renaming it the United States-Mexico-Canada Agreement (USMCA) instead. With China, Trump pursued a trade war to pressure the country into restructuring the balance of trade between the two.
Now, with a Phase 1 deal between the United States and China going into effect earlier this year, and the USMCA going into effect this month, what impact did these disruptions have on U.S. exports? Additionally, a major story in 2020 has been the COVID-19 pandemic. What impact has this had on U.S. exports?
To answer these questions, I reviewed U.S. export data compiled and published by the U.S. Census Bureau’s Economic Indicators Division. I looked at annual exports to the world, Canada, Mexico and China going back to 2015. I also examined monthly export data going back to January 2016.
The first chart shows U.S. exports to the world, Canada, Mexico and China over the last five years. U.S. exports to the world dropped 4.5% between 2015 and 2016 but had two years of strong growth, topping out at $1.67 trillion in 2018. U.S. exports dropped 1% in 2019, ending the decade at $1.64 trillion.
To compare Canada, Mexico and China more easily, the chart above has exports to the world removed. My first observation is how closely U.S. exports to Canada and Mexico parallel each other as well as exports to the world in the previous chart. Exports to China are similar. They are down in 2016 but recover in 2017. However, instead of growth in 2018, exports to China drop again in 2019. Between 2015 and 2019, exports to the world are up 9%, up 4% to Canada, up 9% to Mexico and down 8% to China.
The chart above shows monthly export figures for the United States to the world going back to 2018, represented by the bar graphs and using the scale on the left axis. The chart also includes the cumulative of those monthly figures for each year, which are represented by the line graphs, and use the scale on the right axis. January and February exports look similar for all three years. However, in March 2020, the figure does not keep pace with previous years. The figures for April and May 2020 show a more drastic drop in exports. We can see on the line chart that 2018 and 2019 were similar years, and although 2020 started the same, it deviated after March. The most likely reason for 2020’s exports dropping is the pandemic.
The two charts above show monthly exports to Canada and Mexico going back to 2016. Generally, monthly exports increased year over year until 2019, when exports were slightly lower than in 2018. This follows what we see in the first two charts, where exports increased from 2016 to 2018 but fell slightly in 2019. The monthly figures between 2016 through 2019 do not show any noticeable impact from the USMCA negotiations, which began May 2017 and ended October 2018. Had there been an impact, I would have expected to see a drop between 2016 figures and 2017 and beyond. Instead, the monthly figures are up in 2017 and 2018, which correlates with U.S. exports to the world. The drop in 2019 exports also correlates with exports to the world, suggesting that something else was impacting U.S. exports overall and not specifically related to the USMCA negotiations.
Exports to Canada and Mexico in 2020 also correlate with exports to the world. January and February exports are similar to previous years, then in March they are slightly below previous years. Exports drop dramatically in April and May 2020 from their levels in previous years. This is most likely due to the lockdowns related to COVID-19.
The chart above focuses on U.S. exports to China and includes monthly and cumulative data going back to January 2018. Looking at the monthly data, 2018 had a strong first half then tapered off in the second. Because of that strong first half, the 2018 cumulative line is noticeably higher than the 2019 and 2020 lines. The 2020 monthly figures are also different than in the previous three graphs. January and February are the lowest numbers, followed by increases each month thereafter. Monthly exports topped out in February 2018, then made a noticeable drop the following month, which coincided with the first set of retaliatory tariffs China imposed on U.S. products.
China imposed increasingly retaliatory tariffs on U.S. goods throughout 2018. In December 2018, the two countries agreed to a 90-day pause on new tariffs to conduct trade talks. Trade talks fell through and China announced new retaliatory tariffs in August 2019. Finally, in October 2019 the two countries announced a Phase 1 deal, ending the trade war.
The results of these actions can be seen on the chart above. Monthly exports in 2018 drop after tariffs were imposed by China. In the first three months of 2019, exports rose as the two countries worked through trade negotiations. When those talks fell apart, exports did as well. After a deal was announced in October, exports moved higher in November. However, exports fell each month for the next three months and reached their lowest levels in February 2020. This is likely the result of the pandemic as the virus hit China before the rest of the world. As China began reopening, exports grew month over month in March, April and May.
After reviewing these charts, I do not see any noticeable impact from the USMCA negotiations on U.S. exports to Canada and Mexico. The ups and downs in exports to Canada and Mexico parallel overall U.S. exports to the world, which suggests to me that something else is responsible for the month-to-month and year-to-year changes.
However, the trade dispute between the United States and China does appear to have had a clear impact on U.S. exports to China. Whenever China implemented retaliatory tariffs on U.S. goods, a drop in U.S. exports occurred. Conversely, when the dispute cooled off, exports to China increased.
Finally, lockdowns around the world definitely impacted U.S. exports. It is my assessment that the recent drops in exports are demand driven rather than supply driven. Meaning that lockdowns in other countries have lowered demand for U.S. goods more so than lockdowns in the United States have prevented U.S. exporters from exporting. I base this on U.S. exports to China, which have increased month after month beginning in February of this year. As more countries reopen, we will see if the same holds true for U.S. exports to other countries.
I will continue to monitor U.S. exports to see if my analysis holds up as well as to see what other events impact U.S. exports.