In 2016, US President Donald Trump told Americans: “Ladies and gentlemen, it’s time to declare our economic independence once again.” But less than two years later, the United States International Trade Commission’s (USITC) Year in Trade 2017 report shows little evidence of the ‘America first’ policy’s impact on trade, and American trade finance bankers remain sanguine about their prospects – at least for now.
Despite Trump’s mercantilist aim to boost exports across the board while cutting imports, the US saw an increase in the value of both exports and imports of goods in 2017, according to the figures released by the USITC this month. Exports were up US$95.7bn, or 6.6%, and imports up US$155.1bn, or 7.1%. The growth in export value was mostly driven by the crude price increase and the removal of the US government ban on most exports of crude to countries other than Canada in December 2015, which pushed energy-related product exports 45.5% higher to US$143.2bn.
According to the USITC, the value of merchandise exports to all major trading partners increased, with the exception of Taiwan, which saw a decrease of 1.1%. India saw the biggest rise, of 18.7%.
“It’s really value change that we saw in the US, not increased volume. The cost of oil affected both sides of the ledger,” says Michael Quinn, managing director of global trade and loan products at JP Morgan. “A rising tide raises all boats.”
In a year which saw the fastest economic growth in three years and four Federal Reserve rate hikes in 12 months, “the macroeconomic aspect is supporting positive performance more than any specific policy”, says Michael McDonough, JP Morgan’s head of corporate trade and supply chain.
Trump has made cutting the US trade deficit one of the cornerstones of his trade spats with major partners, but this new data shows that only the agricultural sector experienced a trade surplus in 2017, with US$5.7bn more in exports than imports. This actually narrowed from 2016, where agricultural exports were worth US$129.7bn versus imports of US$113.1bn. The energy-related products sector’s deficit fell to US$4.5bn, but the trade deficit in other sectors of the US economy widened.
There are structural reasons for this. As a recent Oxford Analytica Daily Brief pointed out: “A permanently higher dollar due to the desire of investors to buy US assets will keep the US goods balance in deficit despite trade policy.”
“The impact of individual policy changes hasn’t penetrated yet,” explains Quinn. He believes that 2017 was in general a “better year” in US trade finance than prior years, largely due to global economic strength. However, with the US pushing forward with plans to impose further tariffs on China, the implications for lenders could be serious.
USITC figures show the value of imports from China were the biggest gainer in 2017, up 9.3%. “If tariffs kick in with any permanence then I think sourcing patterns would change. US steel or aluminium, because of reciprocal tariffs, would become more expensive and a European Union importer could then turn to China or India for the same product,” says Quinn, although he believes it is still “too early to tell for the future if tariffs are going to be sustained”.
So far, then, America’s trade finance banks are yet to see any material implications of the ‘America first’ policy. “Ultimately, our business will change if and when our clients change their sourcing and their selling patterns. If we were to see a wholesale shift away from manufacturers importing input to then manufacture and export, that would impact our business. But as of yet, we have not. We haven’t seen any substantive, longer-term shifts in clients’ behaviour that we weren’t seeing already,” says McDonough.
For now, despite sabre-rattling from the US president, it remains business as usual for trade finance in the country. “Looking at the future, I think the changes we see are more dependent on longer-term trends such as the continued shift to open account, which drives an increase in supply chain finance or other related open-account financing activities. We are also seeing an increased shift towards digitalisation or electronic trade,” says McDonough. “Those are both long-term trends, and frankly I don’t think that change in trade policy has much impact on them.”