US trade deficit falls as exports hit more than 1-1/2-year high
WASHINGTON: The US trade deficit fell in December as exports hit their highest level in more than 1-1/2 years amid record shipments of technology products, but strengthening domestic demand points to further rises in imports, which could constrain economic growth.
The Commerce Department said on Tuesday the trade gap dropped 3.2 per cent to US$ 44.3 billion, ending two straight months of increases.
The trade deficit rose 0.4 per cent to a four-year high of US$ 502.3 billion in 2016.
That represented 2.7 per cent of gross domestic product, down from 2.8 per cent in 2015.
When adjusted for inflation, the deficit decreased to US$ 62.3 billion from US$ 63.9 billion in November.
President Donald Trump has blamed US trade policy for the loss of American factory jobs and has vowed to make sweeping changes, starting with pulling out of the 12nation Trans-Pacific Partnership trade pact.
Trump also wants to renegotiate the North American Free Trade Agreement, which was signed in 1994 by the United States, Canada and Mexico.
But economists do not believe these protectionist measures will eliminate the deficit.
“When an economy is at full employment, an acceleration in demand tends to be accompanied by a pickup in import growth and a wider trade deficit,” said John Ryding, chief economist at RDQ Economics in New York.
“The US simply does not have enough spare labor and capacity at any exchange rate to close the deficit, which will likely widen in 2017 and 2018.” US financial markets were little moved by the report as the government published an estimate of the goods deficit last month.
Trade slashed 1.7 percentage points from gross domestic product in the fourth quarter, leaving output rising at a 1.9 per cent annualised rate.
The economy grew at a 3.5 per cent pace in the third quarter. The improvement in the deficit at the end of the year could set up trade to be a modest drag on growth in the first quarter.