US trade deficit hits eight-month low on weak Chinese imports
The surprise second straight monthly narrowing in the trade gap shows fewer imports from China and soaring aircraft exports
Washington — The US trade deficit fell to an eight-month low in February as imports from China plunged, temporarily providing a boost to President Donald Trump’s “America First” agenda and economic growth in the first quarter.
The surprise second straight monthly narrowing in the trade gap reported by the commerce department on Wednesday was also driven by soaring aircraft exports, which are likely to reverse after Boeing halted deliveries of its troubled 737 MAX aircraft. MAX planes have been grounded indefinitely following two deadly crashes.
Economists warned the trade deficit would remain elevated regardless of whether the US and China struck a trade deal that was to the White House’s liking because of Americans’ insatiable appetite for cheaper imports.
Talks between Washington and China to resolve the bitter trade war have been dragging. The US is also embroiled in conflicts with other trading partners, including the European Union, contributing to big swings in exports and imports data in recent months.
“Even if trade negotiations are resolved in such a way as to reduce the bilateral trade deficit with China, one of the Trump administration’s stated goals, this would likely divert trade flows to other countries and have little impact on the top-line US trade deficit,” said Emily Mandel, an economist at Moody’s Analytics in West Chester, Pennsylvania.
The trade deficit tumbled 3.4% to $49.4bn in February, the lowest level since June 2018. Economists polled by Reuters had forecast the trade shortfall widening to $53.5bn in February.
The politically sensitive goods trade deficit with China — a focus of the Trump administration’s protectionist trade policy —decreased 28.2% to $24.8bn in February as imports from the world’s No 2 economy plunged 20.2%. US exports to China jumped 18.2% in February.
In 2018 Washington imposed tariffs on $250bn worth of goods imported from China, with Beijing retaliating with duties on $110bn worth of American products. Trump has defended the duties as necessary to protect domestic manufacturers from what he says is unfair foreign competition.
Trump has delayed tariffs on $200bn worth of Chinese imports. The White House argues that substantially reducing the trade deficit would lift annual economic growth by at least 3% on a sustainable basis, a feat that economists have said is impossible because of low productivity and population growth.
The economy grew 2.9% in 2018.
The dollar was little changed against a basket of currencies, while US Treasury debt prices rose marginally. Stocks on Wall Street fell.
Growth estimates raised
February’s smaller trade deficit suggests the economy will probably avoid a sharp slowdown in growth that had been feared at the start of the year. The goods trade deficit declined 1.7% to an eight-month low of $72bn in February.
When adjusted for inflation, the overall goods trade deficit fell $1.8bn to $81.8bn, also the lowest since last June.
Goldman Sachs raised its first-quarter gross domestic product estimate by four-tenths of a percentage point to a 2.1% annualised rate.
The Atlanta Federal Reserve bumped up its GDP forecast to 2.4% from a 2.3% rate. The economy grew at a 2.2% rate in the fourth quarter.
“It sounds like pencils are being sharpened in order to revise up first-quarter GDP forecasts,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.
In February, goods exports increased 1.5% to $139.5bn. The surge in goods exports is unlikely to be sustained given slowing global economic growth. The dollar’s strength in 2018 means US-manufactured goods are less competitive on foreign markets.
Shipments of civilian aircraft soared by $2.2bn in February. Exports of motor vehicles and parts increased by $600,000m. There was a small rise in soybean exports. Economists expect soybean exports to remain moderate because of an outbreak of swine flu that has reduced demand for soybean meal in China.
In February, imports rose 0.2% to $259.1bn.
Consumer goods imports increased by $1.6bn in February, led by a $2.1bn rise in imports of cellphones and other household goods.
Imports of industrial supplies and materials fell by $1.2bn. Capital goods imports rose slightly, pointing to slower business spending on equipment.
Crude oil imports fell to 173.7-million barrels, the lowest since March 1992, from 223.1-million barrels in January. An increase in domestic production has seen the US become less dependent on foreign oil.
“We see more potential for stronger imports in coming months, which would re-establish a trend towards wider deficits,” said Andrew Hollenhorst, an economist at Citigroup in New York.