Goods deficits & Corporate America: Vietnam jumps to #3 on transshipments from China to dodge tariffs. Tiny Ireland jumps to #4 on trade invoicing to dodge US corporate income taxes.
By Wolf Richter for WOLF STREET.
The US trade deficit (exports minus imports) in goods and services in the year 2024 exploded by 17% from the prior year, to $918 billion, the second-worst year ever, behind only the 2022 deficit, according to trade data from the Census Bureau today.
The trade deficit in goods without services worsened in 2024 to a new all-time worst record, after a spike in December as Corporate America tried to front-run Trump’s tariffs. The small surplus in services improved, but was still smaller than in 2018 and 2019.
The trade deficit (“net exports”) is a negative for GDP. Exports are added to GDP, imports are subtracted from GDP. And this huge trade deficit has been the reason for decades why US economic growth hasn’t been better. For all of 2024, GDP grew by 2.8%, adjusted for inflation. It would have grown by 3.2% if trade had been balanced.
The goods trade deficit worsened by 14%, or by $148 billion, to a new All-Time Worst (ATW) of $1.21 trillion.
- Exports of goods ticked up by 1.9% (or by $39 billion) to $2.08 trillion, below 2022.
- Imports of goods worsened by 6% (or by $187 billion) to a new ATW of $3.30 trillion.
Three decades of connivance by the US government – which bridged with ease any political divide – and Corporate America, under the failed doctrine of globalization, have destroyed much of the manufacturing base so that corporate profit margins could fatten by chasing cheap labor, lax environmental laws, and preferential treatments in US and foreign tax codes.
In return, they sacrificed the most important economic sector – manufacturing – with its huge primary, secondary, and tertiary impact on employment, on household incomes, on federal, state, and local tax receipts, on knowhow in automation and manufacturing technology, on engineering and engineering education, and on infrastructure. In the process, they shifted much of this activity and expertise to other countries.
The US is still the second largest manufacturing country by output in the world, with a share of 15.9% of global manufacturing output, and larger than the next three combined – Japan 6.5%, Germany 4.8%, and India 2.9%. But China’s manufacturing output is nearly twice that of the US, with a share of 31.6% of global output (World Bank data).
That this mess was encouraged to happen over the past three-plus decades under the doctrine of “globalization” and “free trade” is a huge scandal that spanned the political parties. And those globalization-mongers are still at it today, preaching the same failed doctrine.
With China (incl. Hong Kong), the trade deficit in goods worsened in 2024 by 7%, to $273 billion. In reality, the trade deficit with China is much worse because a portion of the imports were routed through other countries, particularly Vietnam and Mexico (more in a moment), to bypass and subvert the tariffs imposed on goods from China in 2018 (more in a moment).
- Exports of goods to China worsened by 2.4% to $171 billion, fourth year in a row of declines.
- Imports of goods from China worsened by 3% to $445 billion.
In overview: US goods exports (blue columns), US goods imports (black columns), and the resulting goods trade deficit of $1.21 trillion (red line):
The services trade surplus rose by 5% (or by $15 billion) to $293 billion, below where it had been in 2018 and 2019.
Trade in services includes international tourism. Americans traveling overseas and spending US-earned money overseas on lodging, restaurants, tickets, etc., counts as imports of services. Foreign tourists, foreign students, foreign business people, etc. spending foreign-earned money in the US on lodging, restaurants, tuition, tickets, etc., counts as exports of services.
International travel slowed dramatically during the pandemic, which caused a big drop in both imports of services (Americans traveling overseas) and exports of services (foreigners traveling in the US). By 2022, most of the travel restrictions were lifted or loosened, and travel in both directions rebounded. 2023 was the year of “revenge travel,” and that trend continued in 2024, which caused the rebound in exports and imports of services.
- Exports of services (blue) rose by 7.9% (or by $81 billion) to a record $1.11 trillion.
- Imports of services (black) worsened by 8.9% (or by $66 billion), to $814 billion.
- As a result, the trade surplus in services (red line) rose but remained below 2018 and 2019.
This services surplus of $293 billion (red line) is dwarfed by the goods deficit of $1.21 trillion.
The US goods trade deficit, by country/region.
The opaque nature of international trade to dodge tariffs, US corporate income taxes, trade restrictions, etc., produces some curious effects.
Transshipments through third countries, such as from China through Vietnam, with minimal additional processing in Vietnam, allow Corporate America to dodge US tariffs. We see this in the ballooning trade deficit the US has with Vietnam: In 2024, it worsened by 18% to $123 billion; since 2019, following the tariffs on Chinese goods, Vietnam has shot up from nowhere to #3, behind China and Mexico
Chinese and US companies have been busy setting up shop in Mexico to use Mexico as entry point – such as by importing components from China and assembling them in Mexico and exporting the product to the US, to dodge tariffs on Chinese goods. The goods trade deficit with Mexico has continued to balloon and in 2024 shot up by another 12% to $172 billion.
Trade invoicing through third countries, such as those with low corporate income-tax rates, allow US corporations to dodge US corporate income taxes by keeping their profits in, for example, a mailbox entity in Ireland, and paying a lower corporate income tax on those profits in Ireland. This is why the goods trade deficits with Ireland continues to balloon, and in 2024 worsened by another 38%, to $87 billion, putting tiny Ireland in #4 position, ahead of export powerhouses Germany, Taiwan, and Japan.
The EU (yellow), an economic region some of whose members are also on this list, is closing in on China, as many imports originally from China are now showing up under Vietnam, Mexico, and other countries, including some European countries. The goods trade deficit with the EU worsened by 13% in 2024 to $235 million, a new ATW.
The 15 “trade partners” with which the US has the worst goods trade deficits.
At some point over the next few days, I will dive into imports and exports by category of goods and services, which is fascinating, so stay tuned.
Meanwhile, the globalization-mongers hate tariffs because they’re a tax on the gross profit margins of the importers among Corporate America and hit stocks because passing that cost on to consumers in a competitive market isn’t easily possible. I watched it last time, amazed by the lack of inflation. Sure, “This time it’s different,” the four most costly words on Wall Street. Here are the details, including how tariffs actually work: What Trump’s Tariffs Did Last Time (2018-2019): No Impact on Inflation, Doubled Receipts from Customs Duties, and Hit Stocks
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Apple’s gross margin in 2024 Q4 was 46.9%, and they did over $100 billion in stock buybacks in 2024. Apple pays a dividend with annual yield of 0.43%.
I think they can afford to cover a 10% tariff, but I am betting they will increase their prices.
By the way, tariffs from China applied during Trump1 was 25% and still is 25%. Then new tariffs of 10% (if fully applied) will be ADDED to the 25%, therefore a total of 35%
Yep, somehow the MSM vastly under-reported how Biden more or less kept those evil Trump 1 tariffs in place.
Shocker.
It’s worse. This time around they are getting rid of de minimis, which means that packages from China that are worth less than $800 are now paying 25%.
I’m scratching my head at the current politics and new policies, and whether that altogether represents a sensible answer. But it shines a strange light on what came before, which had such a well-crafted veneer of normality for decades, as meanwhile, the domestic risks and costs piled up like kindling. So here we are.
The US has a trade deficit with China, the EU, Canada, Mexico, etc….
Mathematically speaking, I’m not sure the US can lose by imposing tariffs, even if it starts a trade war.
From a strict trade balance point of view, I think you are probably right (prices higher because of tariffs = less intl trade = lower US trade deficits)
But the traditional argument is that the US *consumer* will suffer (because of higher prices on the many, many, many imported goods and/or shift to US produced goods with higher prices).
But decades of failure of US goods trade to remotely balance and millions and millions of dislocated manufacturing workers who became baristas instead of promised bio-technologists,,,has caused the “received wisdom” to be re-examined.
I can invent a way to dodge tariff. Factories in China sell goods to US importers at a super low price and at a loss. Tariff is calculated based on this low price so is very cheap. Then US importers buy a “right-to-use” license of the product from the factory. It is not a physical good so tariff does not apply.
With this, US consumers can continue to enjoy cheap Chinese goods, US corporates can keep the lucrative deindustrialization route, and Trump can keep increasing tariff to 200% to keep his election promise without hurting anyone. Kill three birds with one stone.
Interesting fact on foreign travel being an import of services.. strong dollar being a negative factor. The work around tariffs through Mexico and Vietnam is of great concern. Thanks, Wolf.
Good lord, that first graph.
Ross Perot was right.
Ross Perot was the last Presidential candidate I voted for. It was obvious then the direction we were heading. I really feel for people who are voting in many countries for populist candidates, willing to tolerate absolutely distasteful people just to change the status quo. We all crave a new order. But I’m afraid that only comes with an even greater price to pay.
Random Guy 62 had a great comment the other day about his hope for change in slapping the tariff on Mexico. Hours later it was removed in exchange for symbolic gestures on immigration and drug controls. The curtain on the Wizard now pulled back, all we see is more of the same.
I’m still checking in from time to time. Generally a lurker in the comments but this issue hits close to home.
The boss has been making it a personal mission to make this case to anyone who will listen in government while it is fresh in the national consciousness. We just might have a meeting lined up with our representative next week, who said he has been following the issue closely, and would like to hear our case. Fingers crossed.
We are pestering the NTEA by asking if they are work on behalf of American truck equipment or North American truck equipment causes. (Its supposed to be American)
Maybe I’ll just send our rep this article, and save myself the time building our argument.
“I really feel for people who are voting in many countries for populist candidates, willing to tolerate absolutely distasteful people just to change the status quo.”
India is one among them. We have to choose between a bunch of guys with many having innumerable criminal cases against them (attributed to political conspiracy) . And we have an Election Commission which dismisses any votes cast for NOTA (None of the above). In some cases the winner wins with lesser votes than NOTA. A farce of an election with the propaganda that it is the biggest election exercise in the world – called dance of democracy.
By not imposing the tariffs on Canada and Mexica, Trump showed that he is weak. Now Canada has united behind Trudeau. The liberals were very unpopular before last week. Now it looks like they might even win the election thanks to Trump.
wait what? Trudeau has resigned nobody is united behind him your comments are BS! Not that PP is any better but still…
Not only that, some of the provinces are surgically targeting products coming from GOP states and cancelling orders. I can see that strategy catching on as it’s relatively easy to execute and the data is all public.
The stated purpose of the tariffs was to get concessions on border security. Trump got what he asked for and provided a 30 day pause on the tariffs to verify Canada and Mexico do what they said they would do.
Its funny the number of people who lambasted Trump for starting a trade war and are now calling him weak for suspending the tariffs after he got what he wanted.
I don’t like the guy either but he is doing exactly what he said he would do.
You’ve posted this a couple times so I decided to look.
From the CBC Poll Tracker February 3:
“Liberals make progress but Conservatives still dominant”
The conservatives were down 1% to 43.4% and the liberal was up 1% to 23.4%. The conservatives were given a 92% chance of winning a majority and a further 7% chance of winning the most seats without a majority. I don’t profess to follow Canadian politics, and maybe the CBC isn’t a reliable source, but the liberals appear to need a lot more help from someone.
I sat in on a policy meeting of a manufacturers association the other day regarding the tariffs. Prez is getting pressure in both directions.
Farmers are against tariffs for obvious reasons. They are already basically just government contractors at this point anyway, so they will take whatever the government gives them, but they sure whine about it the whole way.
Automotive seems to be carefully lobbying against them, but not too hard cuz they know things like the pickup truck tariffs actually butter their bread.
What cracks me up is no one asks “why would Mexico and Canada care if those manufacturing jobs leave?” They care cuz they are vitally important to their economy! You know…Just like they were here!
I hope Trump imposes the tariffs on Canada after 30 days. That is the only way liberals and Justin Trudeau will be defeated.
Trade is a very complicated issue, and I don’t pretend to know every facet of it. But I know our business like the back of my hand. My family has been bending metal in the American Midwest for four generations, in many different business ventures and products. I started sweeping floors and cleaning bathrooms at age 14. Some of our operations have been shuttered. Others are thriving. We are holding our own, clinging to an ever smaller slice of the market.
Listen to the song “we can’t make it here” by James McMurtry. He paints the picture of my home town and hundreds of towns like it across the Midwest. “Hollowed out” is an accurate way to describe it.
I argue that it is in our country’s best interest to have a diversified economy. Manufacturing is a cornerstone of that.
Society keeps asking more and more of us as an employer. More benefits, more paid time off, higher wages, cleaner processes, better products. That’s all fine. But when I try to pass those costs onto the product, Mr Market says no. Market says no because buyers have wide open access to products made by workers without those same standards of living. Can’t have it both ways in the long run.
There is a big plant across the road that used to be a union shop with good wages. About a decade ago they went belly up and were bought by a foreign investor. The new owners gutted the place, and they are booming -Never seen so much product out the door. That sounds great, but the problem is they pay poverty wages now. It is a horrible place to work. Everyone in their shop is a temp with no benefits. It is a microcosm of our country.
We need to wake up and have some standards for ourselves. If a tariff can nudge things the right direction, sign me up.
Where I am we have the same problems. But we have to hire legal work out and before Covid we were paying about 300 per hour. Now we are paying 900 per hour for the same amount of work. Is that increase caught in the GDP numbers? Eight years ago I needed a new screw in tooth. It was about 900 dollars all in. The same dentist with the same tooth now is charging me 7000 dollars. I am leaving my gap toothed smile as it is. Is that increase shown in the GDP numbers. Is an economy with 900 dollar per hour lawyers more productive than one with 300 dollar per hour lawyers?
“Is that increase caught in the GDP numbers?”
Yes, legal services is part of the PPI for services, which I report on, and it’s hot, and it’s part of the GDP deflator that is used to adjust GDP for inflation.
Yes, on dental work inflation is also in the GDP deflator, except, LOL, I paid $7,000 for a dental implant in 2009 (back molar), and it lasted 12 years before it came lose. So maybe I don’t believe your $900-$7,000 screw story because I know better.
To understand this properly you need to understand the extremes of tax avoidance by major US corporates. In summary much of the deficits arise from selling intellectual property to low tax regions, then bumping up the price of exports from other countries into the US to move profits. Tariffs will work wonders in unravelling this, assuming those corporates don’t have the power to stop Trump killing their golden goose. This article touches on it, for a detailed deep dive see here.
https://www.cfr.org/blog/when-services-trade-data-tells-you-more-about-tax-avoidance-about-actual-trade
“on knowhow in automation and manufacturing technology, on engineering and engineering education,”
One small hope is that in the era of the Internet, things (anythings) can be be taught (re-taught…) faster than previously, without all the rent-seeking impedimenta.
I hope.
Then again, I don’t know if the Pandemic production crisis (mask/ventilator/etc) really illustrated this.
Decades of ZIRP temporarily (and deceptively) papered over an ongoing crisis in the true wellspring of American wealth – domestic productive capacity.
We need to on-shore our important industries, for both economic and defense reasons. It is going to take a while, and the consumer might pay a little more, but it must be done. “Buy American!”, I shout optimistically, as if anybody will buy anything but the cheapest.
BTW, I would never have pegged Wolf for being an anti-globalist, given some of his comments in earlier posts. My mistake, glad I was wrong. Economic reality always wins, it may take some time. The USSR tried to defy it for almost eighty years. I like lots of countries in the world, reasonably independent, each working in its own self-interest. Also lots of different cultures, not polluted by other cultures. Nothing worse than going to Oogooboogoo in Africa and seeing a MacDonalds.
In WW2, the war resources board tapped private industry to divert the USAs massive industrial capacity toward the war effort. Could they mobilize the same now? I’m sure someone studies that right?
What do you do if China decides they are tired of us and turn those big bicycle plants into tank factories?
Meanwhile we long since mothballed every metal bender from Pittsburgh to Davenport. All the welders retired to the villages to swing their last few years away, and their kids moved to Phoenix to sell each other overpriced houses, and drive for uber. Sounds like a recipe for a win.
Ross Perot predicted that this would happen 32 years ago. Karl Marx predicted that this would occur 160 years ago. Globalization has been good for the Chinese peasants. Great for our corporate overlords. Not good for the Generation X Americans that can’t find a good job, or afford to buy a house.
President Reagan had this all figured out decades ago. I still remember he said we are going to be an economy with high paid service jobs and the manufacturing work will be offshored. So we are right on course. Remember in the 1970s the statement that 9 out of 10 millionaires made their money in real estate, that and the financial services including the Federal Reserve that turned that “millionaire” into “billionaires” with no extra work or product. Soon everyone is going to be a millionaire, so these charts are no problem.