Donald Trump was obsessed with trade deficit figure, especially with China. He saw it as a weakness of the United States. Their trade war aimed to correct this imbalance by taxing imports. With the agreement signed in early 2020, China also pledged to increase its purchases of American products, but the pandemic put this goal out of reach.
The outer scale is not a target for Joe Biden. In fact, it is increasing stimulus measures to strengthen domestic demand. This too it will stimulate imports and widen the trade deficit. The US has a chronic national savings deficit, so its foreign deficit is reduced in times of recession due to the fall in domestic demand and grows in recoveries.
But the US deficit also depends on economic growth in other regions. Last year, the crisis was global. The contraction in real GDP was not as strong in the United States (-3.5%) as in Japan (-4.9%), Canada (-5.4%), the euro zone (-6.8%) or the United Kingdom (- 9.9%). Therefore, the demand directed at the United States decreased. In total, the trade deficit rose from $ 854 billion to $ 905 billion in 2020. It can be broken down by geographic region and by product (tables below). This reveals some surprises. Thus, the widening of the deficit corresponds mainly to an increase in gold imports, especially from Switzerland, apparently as a consequence of the financial panic of the spring. Excluding this effect, the US trade deficit remained almost stable.
This was not the goal announced at the beginning of the year, far from it. At that moment, The United States and China had agreed to a truce in their tariff war, and China pledged to increase its purchases of American products. Exports of agricultural products to China (soybeans) increased considerably, while imports from China decreased, under the double impact of the demand shock and the increase in customs duties. Ultimately, the objectives of the trade agreement between the United States and China were not achieved because of the pandemic. The bilateral deficit was reduced, but quite modestly, from $ 345 billion to $ 311 billion. The deficit with the other main regions remained practically stable in 2020. The situation is different this year.
ODDO BHF believes that thanks to the stimulus measures and the upcoming lifting of sanitary restrictions, lhe US economy looks set to enjoy a solid and rapid recovery, which is likely to benefit the countries furthest behind in the cycle, particularly in Europe. With China, relations remain tense, but the two countries no longer apply tariffs. The United States could be the engine of global recovery in 2021. If so, the US trade deficit is likely to set new records
Household disposable income rose sharply by 11.4% in January due to checks paid under Trump’s previous plan, before falling 8% in February. In March there should be another sharp increase in checks paid under the Biden plan. Expenditure was adjusted to these exceptional fiscal measures, although to a lesser extent than income (+ 3.4%, then -1% month-on-month). The savings rate reflects these atypical movements and fell by 19.1% to 13.6% of disposable income, its level at the end of 2020. In 2019, the savings rate stood at around 8%. If we consider that this is a “normal” rate, this means a “savings surplus” since March 2020 for a cumulative amount of about 1,900,000 million dollars, the equivalent of 9% of GDP.
This amount will increase when the savings rate exceeds 8%. With the next relaxation of sanitary restrictions, A rapid normalization of the saving rate can be expected, but not the full liquidation of surplus savings in the market for goods and services.
According to the ADP survey, job creation rebounded significantly in March (+ 517k). 85% of this was due to the service sectors, of which a third corresponded to catering-leisure. The margin of recovery remains considerable. Compared to the pre-pandemic level, nearly 3.5 million jobs were still lacking in these activities in February.
– The slowdown in the residential sector, Linked to the rise in interest rates, it is visible above all in loan renegotiations and, to a lesser extent, in sales. Pending home sales fell back into negative territory in February (-2.7% year-on-year, with a low of -34.6% in April 2020). Housing prices, a variable with the longest lag, continue on a path that continues to be steep. The national S & P / Case-Shiller index is up 11.2% year-on-year.
– The recovery of the industrial sector It did not show signs of weakening in March, as reflected in the improvement in other confidence indices (Dallas, Chicago). Monetary and Fiscal Policy – Joe Biden presented, on March 31, the first part of his long-term investment plan aimed at recovering growth potential. This part refers to infrastructures for an amount of 2.3 million dollars, which represents an expense equivalent to about
1% of annual GDP for eight years. Its main elements are 621,000 million dollars in roads, bridges and public transport, 100,000 million dollars in broadband networks, as many in the electricity network, 213,000 million dollars in the improvement of housing, 400,000 million dollars in infrastructure. for the elderly and disabled, and $ 100 billion in retraining. This plan is expected to be self-financing through tax increases over a 15-year period.
The plan calls for an increase in corporate tax from 21% to 28% (reduced from 35% to 21% under Trump) and efforts to encourage multinationals to repatriate their businesses to the United States to pay 21%, instead of the current 10.5%. At the moment there is nothing about a possible increase in the tax on high incomes. According to ODDO BHF, announcing this plan is one thing; fulfilling it is another. Meanwhile, congressional approval will be required, which will require arbitration and considerable time.