First drop in US trade deficit in six years

Updated February 06, 2020

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The US trade gap narrowed last year for the first time since 2013 after President Donald Trump escalated trade confrontations, causing imports from China to plunge, according to data released on Wednesday. — AFP/File
The US trade gap narrowed last year for the first time since 2013 after President Donald Trump escalated trade confrontations, causing imports from China to plunge, according to data released on Wednesday. — AFP/File

WASHINGTON: The US trade gap narrowed last year for the first time since 2013 after President Donald Trump escalated trade confrontations, causing imports from China to plunge, according to data released on Wednesday.

The narrowing of the US trade gap — the stated goal of Trump’s trade policy — comes after a year when the deficit reached its highest level in a decade.

The total trade deficit shrunk by nearly $10bn to $616.8bn in 2019 as exports fell by 0.1pc and imports dropped 0.4pc, the Commerce Department reported.

Excluding services, the US deficit in goods fell by nearly $20bn to $866bn last year, as imports of Chinese products hit by Trump’s punitive tariffs dropped 17.6pc, according to the report.

That decline was offset by big increases in imports from top US trading partners Canada, which surged 42pc, and Mexico, which jumped 26pc.

In addition to the trade conflicts, the strong US dollar put American exports at a disadvantage, while China’s slowing economy weakened the yuan and boosted exports from that country.

And while shrinking the deficit was the goal of Trump’s trade policy, it is not necessarily good news because a drop in exports often reflects a slowing economy.

In fact, growth in the world’s largest economy slowed in 2019 to 2.3pc compared to 2.9pc in 2018, as business sharply curtailed investment due to the trade uncertainty.

“The trade war hit to business capex and especially the imposition of tariffs on an array of Chinese consumer goods on September 1 are likely to blame for the import collapse,” Ian Shepherdson of Pantheon Macroeconomics said in an analysis.

He warned that, “Firms appear to have met demand by running down inventory, but that can’t go on forever.”

Imports of materials like plastics and crude petroleum intended for the manufacturing sector, which has been in recession for months, fell by 9.3pc.

Imports of capital goods, such as computer accessories and telecommunications equipment, also declined as American companies curbed their investments due to the uncertainty surrounding the trade war.

However, imports of everyday consumer goods such as clothing, sports shoes and kitchen utensils continued to increase, illustrating the solid performance of household consumption which largely supported the expansion of American growth.

Published in Dawn, February 6th, 2020