This morning's release of the March trade data from BEA was not good news. The deficit rose sharply by $6.4 billion to $51.8 billion. Exports increased by $5.3 billion in March but imports surged by $11.7 billion. The deficits in both petroleum and non-petroleum goods increased. But while some of the increase in the deficit is due to higher oil prices (and imports), the deficit grew much more in the non-petroleum goods. Both capital goods and consumer goods saw significant jumps in imports and auto related imports reached a record high.
In some good news, the trade surplus in intangibles continued to grow in March, increasing by $173 million to $14.119 billion. Imports and exports increased for both royalty payments and business services, with exports rising faster than import in both categories. As I noted last month, the trade surplus in business services had declined in the Nov-Jan time period. So, the continued increase in the business services surplus is especially good news. However, we must continue to remember that the intangibles surplus is a fraction of the goods deficit. The size of the goods deficit is 4.8X the size of the intangibles surplus. The increase in the goods deficit was almost 60X the increase in the intangibles surplus. If we are to bring trade back to a more balanced position, we cannot rely solely on trade in intangibles. We must use our advantage in intangibles to the strengthen the competitive position of our goods manufacturers and thereby both increase exports and reduce imports.
Symptomatic of the challenge we face in knowledge (intangibles) intensive goods is that fact that the deficit in Advanced Technology Products also shot up in March to $7.2 billion. The decline was due almost exclusively to a $3.8 billion surge in information and communications technology (ICT) imports -- which swamped increases in aerospace and ICT exports. The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.
Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:
Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.
Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.
