US trade deficit widens 17.5%

US trade deficit worsens following the biggest surge in one-and-a-half years

 
US trade deficit widens 17.5%
A fall in the export of US goods has contributed to the widening trade deficit 
Author: Kim Darrah
December 7, 2016

On December 6, The US Department of Commerce released figures showing a hike in the size of the US trade deficit – its biggest monthly rise for more than one-and-a-half years. Looking forward, there appears to be little hope that the deficit will see a substantial improvement.

Growth in consumer spending looks set to maintain its momentum, which could have a negative effect on the trade balance in coming years

The figures show the trade gap for October reached a four-month high at $42.6bn, up 17.5 percent from September. The trade balance was hit by a 1.8 percent decrease in exports, driven by disappointing sales of food, consumer goods and industrial supplies. The reversal of a one-off surge in soybeans also contributed to the difference, after US soy exports benefitted from a poor yield of the crop in South America. The dampened export demand also reflects the lagged effect of the dollar’s surge from mid 2014 to the beginning of 2016, and the associated blow to US competitiveness. The dollar has once again rallied since Trump’s election victory, potentially scuppering any hopes of a future pickup in exports.

On the other side of the equation, US imports saw a 1.3 percent increase from the previous month – reaching $229bn. This upwards shift is a result of increased spending, particularly on foreign telecommunications equipment, pharmaceuticals and mobile phones. Based on positive growth projections, growth in consumer spending looks set to maintain its momentum, which could have a negative effect on the trade balance in coming years.

Notably, exports of services saw a record high, pointing towards a key strength in the US economy looking forward. Furthermore, US exports to China were the highest since December 2013, leading to a narrowing trade gap with the nation.

However, many questions for the future – particularly regarding the strength of exports in years to come – will hang on decisions made by Trump once he takes office. His campaign trail saw promises of tariffs and a commitment to manufacturing, which, if implemented, would inevitably play a huge role in shaping trade movements in the future. However, while Trump asserts he can improve US trade prospects, World Finance recently reported that the policies he has put forward could be set to backfire.