U.S. Trade Gap Narrowed Sharply in January

Date: Tuesday, April 2, 2019
Source: The Wall Street Journal

Deficit in goods with China shrinks 14%, explaining much of the reduction in overall gap

The U.S. trade deficit narrowed sharply in January, reflecting a slowing domestic economy and volatile trade dynamics with China amid the Trump administration’s tariff negotiations.

The trade deficit in goods and services shrank 15% from December to a seasonally adjusted $51.15 billion in January, the Commerce Department said Wednesday. That was considerably smaller than the $57 billion deficit forecast by economists.

Behind the narrower deficit was a steep drop in goods imports from China, which had surged in December as companies raced to get products into the U.S. ahead of a threatened tariff increase by the Trump administration that was ultimately delayed. But imports from other countries slipped as well, suggesting that an expected slowdown in the domestic economy this year may be playing a role.

Exports rose 0.9% in January from December to $207.34 billion, while imports of foreign goods and services into the U.S. fell 2.6% to $258.49 billion.

“The fall in imports is a lot bigger than I was expecting. I don’t think that’s a good sign for the economy,” said Michael Pearce, a senior U.S. economist at Capital Economics. “Taken together with the other monthly activity data that we have, it’s becoming increasingly clear that there’s been a pretty substantial slowdown in domestic demand over the last few months.”

From an accounting perspective, Wednesday’s numbers bode well for U.S. economic growth in the first quarter, as trade deficits subtract from gross domestic product. Widening trade deficits shaved 0.3 percentage point from U.S. GDP in 2018, Pantheon Macroeconomics estimates, a loss that could be reversed this year if the deficit narrows.

The deficit in goods with China, the U.S.’s largest trading partner in 2018, narrowed by 14% to a seasonally adjusted $33.22 billion, explaining much of the reduction in the overall trade gap. That owed largely to a sharp drop in U.S. imports from China in January, a reversal of the December surge.

Another factor that eased the trade deficit was soybean exports, which plummeted last year as China diverted purchases of the oilseed away from the U.S. in response to Trump administration trade policies. Soybean exports jumped to $1.209 billion in January from $299 million in December. China announced at the end of January it would increase soybean purchases from the U.S.

A pickup in soybean exports early in the year could make an outsize contribution to the trade balance and GDP figures after seasonal adjustments made by Commerce Department statisticians. Soybean exports normally don’t ramp up until late summer or early fall, though last year’s spat with China left farmers sitting on large stockpiles.

“We think exports overall are going to continue to moderate based on the global outlook, but there is that tailwind that’s coming from the possibility of higher soybean exports,” Nomura economist Robert Dent said.

The trade deficit widened over the course of last year as a combination of tax cuts, increased government spending and falling unemployment delivered a surge in U.S. growth at the same time as other major economies, which buy American exports, slowed. December saw the largest monthly gap since 2008.

An expected slowdown in the U.S. economy this year could reduce the growth of imports relative to exports and help restrain the deficit, economists say. Expectations that the Federal Reserve will hold off on raising interest rates this year have allowed the dollar to stabilize in recent months, after an appreciation in the greenback last year left U.S.-made goods marginally less competitive against foreign rivals.


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