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Surge of imports not a sign of weak demand, on the contrary, but imports deduct from GDP.
By Wolf Richter for WOLF STREET.
The tariff chaos continues with a constant barrage of announcements of new tariffs followed by announcements of pauses, exclusions, etc. Just this morning, Trump announced that tariffs on Mexican goods will be paused until April “for anything that falls under USMCA” (the NAFTA replacement). Yesterday, they announced that tariffs on autos from Canada and Mexico will be paused for one month. In addition, implementation of tariffs takes some time. And uncertainty and chaos reigns.
But months of tariff-talk has set off a huge wave of imports to front-run any tariffs, starting in December with a 15% year-over-year spike, before Trump was even President, and accelerated in January with a 25% year-over-year spike to an all-time record of $319 billion not seasonally adjusted, and $330 billion seasonally adjusted, according to the Census Bureau today.
Exploding imports are not a sign of a weak economy, or weak demand – on the contrary, normally. But in this case, they’re a sign of front-running the tariffs. Imports are subtracted from GDP in the GDP formula and therefor push down GDP growth. Exports are added to GDP and push up GDP growth. And this explosion of imports is going to weigh on GDP growth. But it will be followed by a drop in imports when the front-running ends, as imported goods fill warehouses in the US to the rafters.
Nearly half of the year-over-year increase of $63 billion of goods imports was driven by finished metal shapes. Computers, telecom equipment, and pharmaceutical products accounted for another third of the increase:
- Finished metal shapes: +1,030% YoY, +$31 billion YoY, to $34 billion. Accounted for 46% of the spike.
- Computers, computer accessories, telecom equipment: +54% YoY, +$11 billion YoY to $32 billion. Accounted for 17% of the spike.
- Pharmaceutical preparations: +55% YoY, +$10 billion YoY, to $28 billion. Accounted for 15% of the spike.
- Imports of gold: +293% YoY, +$2.7 billion YoY, to $3.8 billion. Accounted for 4% of total spike.
- Cellphones and other household goods: +26% YoY, +$2.2 billion YoY, to $10.8 billion. Accounted for 3% of total spike.
But motor vehicles and parts imports dropped. Lead times for motor vehicles are long, with long and global supply chains, and they cannot suddenly be produced and shipped in larger quantities. And so automakers were not able to front-run any tariffs, and imports in January fell by 6% year-over-year, or by $1 billion, to $38 billion.
Explosion of imports caused Goods & Services trade deficit to spike by 96% YoY.
Goods trade deficit worsened by 64% year-over-year, to a record worst level of $155 billion, not seasonally adjusted (blue in the chart below).
The goods and services trade deficit, which is what drags down GDP, nearly doubled, to $131 billion in January, from $67 billion a year ago.
In early 2022, imports also exploded as the supply chain chaos was getting resolved and backed-up goods started arriving in the US after the shortages. In March 2022, the trade deficit exploded to $102 billion, contributing to a negative GDP reading in Q1.
It also shows the scary dependence of the US economy on imports, after decades of rampant and reckless one-way globalization by Corporate America in search of cheap labor to fatten up their profit margins, and why this issue needs to be addressed with tariffs to change the math of producing in the US.
It’s not like no one is manufacturing cars in the US. All Teslas sold in the US are made in the US. Teslas are on top of the list of vehicles with the most US content. Hondas are right behind. Most Honda’s sold in the US are made in the US. Honda has already responded to the tariffs by announcing that it would also shift production of its next generation Civic Hybrid from Mexico to the US. All Japanese automakers have plants in the US, as do European automakers. Most Toyotas sold in the US are made in the US. Ford, GM, and Stellantis – with their US-sold brands relying more and more on production in Mexico – will likely also rethink some of their options. And that’s the purpose of tariffs. Or else they can pay.
But what they cannot do without watching their sales collapse is pass on the cost of the tariffs by raising prices on models that compete with vehicles that have a lot of US content and don’t face those costs. That’s why Ford is in such a panic – because it will have to eat most of those tariffs, if they’re ever implemented, and given the current chaos and lobbying, they may not get fully implemented.
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The post Explosion of Imports Causes Trade Deficit to Spike by 96% in January YoY on Tariff Front-Running appeared first on Energy News Beat.
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