Commentary: According to a report by the National Retail Federation (NRF) and Hackett Associates, 2.1 million cargo containers entered the U.S. in August, an all-time record for imports of this type. This figure was up 9.7 percent from July and 8 percent compared to 2019. The NRF estimates September container imports at 2.08 million, which is a 10.9 percent increase compared to 2019. October is forecasted at 1.86 million, a 1.1 percent decrease from last year. The 2020 July through October time period is the time of the year that retailers start to stock their shelves in time for the holidays, and the 7.96 million containers that were imported during this period is a record. Supply chains are straining to keep up with the demand.
Apparently, we are seeing pent-up demand due to the pandemic by people who postponed purchases worried over the uncertainty of future paychecks. People working from home are also buying items such as desks and computers for themselves and their children, as many schools are closed to stem the wave of the COVID-19. Many people are shopping earlier to avoid crowded stores and especially shipping delays. I myself have contributed to this increasing demand, having bought products I probably would never have bought previously, including a food processor and an air fryer, now that I have limited my visits to restaurants.
Another major factor in unleashing the demand for imports has been stimulus programs that have provided checks and loans to individuals and businesses to keep them afloat as the economy slowly reopens. Many Americans who were not furloughed or who didn’t lose their job during the pandemic have treated the stimulus checks as a windfall, and are starting to spend this money. This is good for retailers that want to recoup any losses or outright salvage the economic damage caused by the pandemic.
The flipside to the record imports is the ballooning trade deficit, which is when imports are higher than what a country exports. In August of this year, the U.S. trade deficit hit a record $83 billion. Economists are estimating that by the end of the year, the U.S. trade deficit will have soared to $600 billion, the highest it has been since 2008 and the beginning of the Great Recession. In 2020, the average monthly trade deficit has exceeded the $73.3 billion average in 2019.
Our trade deficit with China, the country responsible for the largest portion, shrank by $36.6 billion from January through May of this year compared to the same period in 2019. However, this trend lost steam during the June through August time period, with the trade deficit only decreasing approximately $4.5 billion in 2020 compared to 2019. If Americans keep increasing spending to buy imported products, we could see trade deficit numbers quickly shoot upward.
The tariffs imposed on Chinese imports, which are the primary weapons the U.S. has been using in its trade war with China, are not the cure-all to curb the trade deficit as the Trump Administration had hoped. Indeed, most economists see tariffs as a short-term strategy in addressing the trade deficit. How this trade war will come to a resolution is uncertain, especially during this time of pandemic.
What is apparent is that Americans continue to buy products that can be made more economically in other countries such as China. Companies that buy, produce, and distribute products made in China simply pay the tariff, add it to the price of the goods, and pass this extra cost to consumers. In many cases, a tariff is ineffective if the price of a product is so economical and competitive that the product is still considered a good bargain in the market even after the tariff is implemented. This is evidenced in the fact that as the economy reopens, we are reverting to monthly trade deficits with China similar to before.
Many Americans do not consider where a product is made, as long as they perceive it to have quality at a reasonable price. Americans typically try to stretch their paychecks, and this kind of mindset could be considered the “American way.” In the meantime, increased imports are the bane of trying to address an increasing trade deficit. If the volume of cargo containers entering the country keeps rising, we can expect the trade deficit to do the same.