Bigger Pharmaceutical Imports Help Bring U.S. Trade Deficit To A Record

 

China’s Retaliatory Trade Tariffs Seem To Be Having An Impact; Trump’s Not So Much

 

Notice when you get your prescription filled at the drug store these days, it’s extremely likely–especially if you take generics–the label lists a manufacturer based overseas? Two or three years ago most of those generic manufacturers were based in India. Now an increasing number are in China. The Food and Drug Administration has offices in both those countries. Even so, the number of warning letters from the FDA to foreign producers have been growing every year, with China leading the way.

And it presents a unique problem for Trump: he’s promised to get drug prices down while at the same time pledging more drugs will be made in the U.S.A. for safety reasons. But even brand name drugs that are made in the U.S. by U.S. companies source 80% of their ingredients from India and China. Overall, drugs sold by U.S. distributors of overseas manufacturers are creeping toward 20%. So this seems like a really hard high wire act Trump’s set out for himself. And in fact Trump’s USMCA (or the new NAFTA) that he just signed and now has to get through Congress, allows drug manufacturers more time before cheaper generics are introduced. If it passes, big pharma will now have a full decade before their products face generic competition.

 

 

Overall, America’s trade deficit soared to $55.5-billion according to the most recent numbers available from the Commerce Department, which are from October. That’s the biggest monthly deficit in 10 years. It’s not all bad news: the U.S. actually ran a surplus globally on services, like banking, tourism and insurance. But Trump’s very manufacturing-focused, and often only includes goods, not services, in the figures he tosses around, and then he tends to exaggerate on top of it. Also, the U.S. exported a record amount of energy products.

The U.S. trade surplus with China soared more than 7% to a record $43.1-billion, partly due to that $1.5-billion increase in pharmaceuticals, but also a lot of consumer goods. And that’s all despite Trump having slapped tariffs on a wide range of goods, but not reaping the desired effect. Part of the reason Trump’s tariffs aren’t having the “desired” effect is the dollar is strong. And as we’ve said before, if you slap a 20% tariff on some imported product, but the dollar rises 10%, the effectiveness of your tariff is cut in half.

Meanwhile, retaliatory tariffs by China do seem to be hurting the U.S. Perhaps the biggest factor in the soaring deficit is a dramatic plunge of nearly 50% in U.S. soybean exports. That was one of the first areas China targeted, and according to Bloomberg is one of the first areas it’s considering opening back up following Trump’s purported trade entente with China’s President Xi last weekend.

While less than 40% of the deficit with China, the U.S. trade deficit with Europe surged even more in percentage terms, rising 65.5%, also to a new record. And Trump hasn’t even gotten started on Europe