skip navigation

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

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 2022. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
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 Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. 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.