skip navigation
Blog

Stay up to date on timely topics and market events. Subscribe to our Blog now.

ECONOMY
April 07, 2021

Foreign Trade Headlines Mask a Varied Trade Experience From Covid

By Michael J. Bazdarich, PhD

Stay up to date on timely topics and market events. Subscribe to our Blog now.

February foreign trade data released today by the Census Bureau show merchandise exports down, imports up and the trade deficit up commensurately. Since February 2021, the onset of the Covid pandemic, US real exports are down -8.0%, while real imports are up +8.2%.

Those statistics suggest that Covid has been a disaster for US foreign trade, but they don’t tell the whole story. In fact, foreign trade has recovered remarkably well for the most part. The weakness in US exports is confined to two components where the strength of our exports depends on the resilience and degree of openness of our trading partners, as well as on our own competitiveness.

All the weakness in exports is in oil and capital goods. For other types of goods, exports have rebounded since the 2020 shutdown just as much as imports. You can see this in the accompanying chart, where we break down exports into capital goods, oil, food and all other goods. Note also in the chart that exports of food and oil are measured on the right scale and note the difference in magnitude of the two scales.

Exports of “all other goods” account for roughly half of total exports, and these actually bounced in late-2020 to levels higher than what was seen pre-Covid. Food exports are much smaller in magnitude. They, too, have more than fully recovered from Covid shutdown effects.

Exhibit 1: Composition of US Real Exports
Explore International Trade Trends.
Source: U.S. Census Bureau. As of 28 Feb 21. Select the image to expand the view.

Capital goods exports are a bit less than 30% of total exports. They recovered somewhat in late-2020, but only to 89% of pre-Covid levels. Exports of oil have been weak throughout the pandemic experience. Notice also that capital goods and oil accounted for the bulk of the reported February export decline.

We’ll stipulate for the record that US imports of all these goods types have recovered to pre-Covid levels. The state of foreign trade flows is obviously dependent on the degree of openness across the societies of our trading partners, and across our own society. Our goods-producing and goods-selling facilities have largely been open since April 2020, and our imports of these have rebounded accordingly.

For our trading partners, they are producing goods, and their citizens are eating, and our exports sensitive to these activities have rebounded commensurately. However, with large swaths of Europe and elsewhere still in lockdown, travel and commuting—thus oil consumption—are down substantially. For these reasons, most likely, foreign producers have been slower to ramp up capital spending, and our exports of capital goods reflect this. Clearly, a fuller rebound in US exports requires a fuller reopening of our trading partners’ societies, but other than that, the foreign trade data do not seem to indicate any more serious defects in the current state of global foreign trade.

© Western Asset Management Company, LLC 2024. The information contained in these materials ("the materials") is intended for the exclusive use of the designated recipient ("the recipient"). This information is proprietary and confidential and may contain commercially sensitive information, and may not be copied, reproduced or republished, in whole or in part, without the prior written consent of Western Asset Management Company ("Western Asset").
Past performance does not predict future returns. These materials should not be deemed to be a prediction or projection of future performance. These materials are intended for investment professionals including professional clients, eligible counterparties, and qualified investors only.
These materials have been produced for illustrative and informational purposes only. These materials contain Western Asset's opinions and beliefs as of the date designated on the materials; these views are subject to change and may not reflect real-time market developments and investment views.
Third party data may be used throughout the materials, and this data is believed to be accurate to the best of Western Asset's knowledge at the time of publication, but cannot be guaranteed. These materials may also contain strategy or product awards or rankings from independent third parties or industry publications which are based on unbiased quantitative and/or qualitative information determined independently by each third party or publication. In some cases, Western Asset may subscribe to these third party's standard industry services or publications. These standard subscriptions and services are available to all asset managers and do not influence rankings or awards in any way.
Investment strategies or products discussed herein may involve a high degree of risk, including the loss of some or all capital. Investments in any products or strategies described in these materials may be volatile, and investors should have the financial ability and willingness to accept such risks.
Unless otherwise noted, investment performance contained in these materials is reflective of a strategy composite. All other strategy data and information included in these materials reflects a representative portfolio which is an account in the composite that Western Asset believes most closely reflects the current portfolio management style of the strategy. Performance is not a consideration in the selection of the representative portfolio. The characteristics of the representative portfolio shown may differ from other accounts in the composite. Information regarding the representative portfolio and the other accounts in the composite are available upon request. Statements in these materials should not be considered investment advice. References, either general or specific, to securities and/or issuers in the materials are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendation to purchase or sell such securities. Employees and/or clients of Western Asset may have a position in the securities or issuers mentioned.
These materials are not intended to provide, and should not be relied on for, accounting, legal, tax, investment or other advice. The recipient should consult its own counsel, accountant, investment, tax, and any other advisers for this advice, including economic risks and merits, related to making an investment with Western Asset. The recipient is responsible for observing the applicable laws and regulations of their country of residence.
Founded in 1971, Western Asset Management Company is a global fixed-income investment manager with offices in Pasadena, New York, London, Singapore, Tokyo, Melbourne, São Paulo, Hong Kong, and Zürich. Western Asset is a wholly owned subsidiary of Franklin Resources, Inc. but operates autonomously. Western Asset is comprised of six legal entities across the globe, each with distinct regional registrations: Western Asset Management Company, LLC, a registered Investment Adviser with the Securities and Exchange Commission; Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorized and regulated by Comissão de Valores Mobiliários and Brazilian Central Bank; Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services License 303160; Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services License for fund management and regulated by the Monetary Authority of Singapore; Western Asset Management Company Ltd, a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan; and Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority ("FCA") (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.