US trade deficit in February hits record

The US trade deficit for February hit a record US$61 billion. As usual, Brad Setser has some interesting insights.

I would not be surprised if the March deficit exceeded $65 billion.

Seasonally adjusted Petroleum imports were only $18 billion in February... The raw number in February was around $15 billion. The raw number could easily be $20 billion for March.

And the Chinese new year fell in February this year, keeping this month's bilateral deficit with China down. Expect the bilateral deficit with China to widen by $2 billion or so in March...

Simple extrapolation of current y/y growth rates for exports and non-oil imports -- combined with oil in the vicinity of $55 a barrel for the remainder of the year -- produces an absolutely enormous estimated trade deficit. $807 billion...

That kind of trade deficit would easily push the current account deficit over $900 billion. I still think that is a bit too high, because I suspect non-oil import growth will slow...

The bilateral deficit with China is on track to absolutely explode... Incidentally, US imports from the overall Asian Pacific region rose by 19.6% (y/y)... Non-Chinese imports from the Pacific rim rose by around 9% y/y. Imports from China are not displacing imports from the rest of Asia.

But lest any one think the US trade deficit is made in China, or just the product of an undervalued renminbi, consider this: the US trade deficit with the Eurozone also continues to grow... And no one can accuse sclerotic old Europe of having an unfair cost advantage because of an undervalued currency ...

This is just more evidence that US demand is being met to a very large extent by foreign producers. No wonder American workers don't seem to be benefiting from US economic growth, as this New York Times report quoted by Brad DeLong says:

Even though the economy added 2.2 million jobs in 2004 and produced strong growth in corporate profits, wages for the average worker fell for the year, after adjusting for inflation - the first such drop in nearly a decade...

[M]any...economists argue that the increasing exposure of the American economy to globalization, along with other forces - including soaring health insurance costs that leave less money for raises - is putting pressure on wages that could leave millions of workers worse off.

... Richard B. Freeman, a Harvard economist, predicted that new competition in the form of millions of skilled Chinese, Indian and other Asian workers entering the global labor market will increasingly pull down American wages...

For some of my previous commentaries relating trade -- particularly with China -- to jobs and wages in the US, see "The impact of China on the world economy" and "US demand and Chinese production".