Tariffs start to drag on U.S. economy as trade deficit widens
Analysts say numbers illustrate how economic disputes spur data volatility
Fresh data on the U.S. economy show President Donald Trump’s escalating trade war is shaping up as a clear drag on growth this quarter.
The merchandise-trade deficit unexpectedly grew in August to US$75.8 billion, the widest in six months and close to a record, as exports of food, industrial supplies and autos declined, Commerce Department data showed Thursday. A separate report from the department signalled corporate investment took a breather, with business-equipment orders at U.S. factories falling in August following a run of strong gains, while shipments of those items slowed.
Economists at JPMorgan Chase & Co., Amherst Pierpont Securities and Capital Economics trimmed their estimates for third-quarter gross domestic product growth. Before Thursday ’s data, the median estimate in a Bloomberg survey was for three-per-cent expansion.
While analysts said the trade deficit partly reflected an expected reversal of the second-quarter’s surge in soybean exports before Chinese-imposed tariffs, and GDP growth is seen remaining solid, the numbers illustrate how the trade war is spurring volatility in the data. In addition, the widening deficit runs contrary to Trump’s aim of a narrower gap and underscores the challenges of achieving that goal amid strong domestic demand — which tends to boost imports — and retaliatory tariffs from abroad.
“The data are grim,” Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd., said in a note, referring to the August goods-trade gap. “The administration’s narrative, that the secondquarter drop in the deficit was a result of their trade policies, has now fallen apart, as it was always likely to do.”
Another report on Thursday showed global trade is continuing to lose a little steam amid the tariff battle between the U.S. and China, the world’s two biggest economies. Freight and logistics company DHL said its trade barometer weakened in September, dropping to the lowest since 2016 and indicating a slower pace of growth in the months ahead.
Also Thursday, the World Trade Organization cut the outlook for global commerce through 2019 and warned that tension between major trading partners increasingly threatens economic growth.
While economists say it may be too early to detect the exact U.S. impact from trade disputes, the data bear watching as the headwinds and uncertainty look unlikely to dissipate soon. Thursday ’s reports come after the U.S. and China imposed tariffs on each other in late August, which followed others implemented in early July. The U.S. added tariffs on another US$200 billion of Chinese imports this week — the largest escalation of the trade war so far.
Non-military capital goods orders excluding aircraft fell 0.5 per cent in August while shipments of such goods cooled to a 0.1 per cent advance.
Bloomberg Economics wrote that “the slowdown is likely due in part to trade tensions and is a sign that production levels are set to moderate in the fourth quarter.”
The wider trade gap reinforced estimates that overall net exports will be a drag on third-quarter GDP growth after providing a 1.22 percentage-point boost in the previous period.
Conversely, August figures released Thursday signalled inventories will give a large boost to growth this quarter, after subtracting 1.17 percentage point from the second-quarter GDP advance. Some economists said the gains at wholesalers’ inventories last month may also have been a sign of possible stockpiling of imported goods ahead of the threat of tariffs.
“Net exports will be a drag” in the July-September period, “but inventories will be a positive,” said Paul Ashworth, chief U.S. economist for Capital Economics, who trimmed his GDP growth forecast to three per cent, from a gain of between three per cent to 3.5 per cent. That amounts to a pace of expansion that is “still very good, just not very, very strong like the second quarter.”
The wider merchandisetrade deficit also reflected a 0.7-per-cent August increase in imports, as shipments of autos and consumer goods increased.
Revised second-quarter data on Thursday showed GDP posted a 4.2-per-cent annualized pace of expansion — the fastest since 2014.
Stephen Stanley, chief economist at Amherst, cut his thirdquarter GDP growth estimate to 2.8 per cent, from three per cent. Net exports may subtract as much as 1.5 percentage point from this quarter’s GDP advance, according to Omair Sharif, an economist at Societe Generale SA.
The data are grim. The administration’s narrative, that the secondquarter drop in the deficit was a result of their trade policies, has now fallen apart, as it was always likely to do.