US exports to China on the rise
THE US trade deficit widened in October but remained smaller than a year earlier, and included a jump in exports to China, especially cars, the Commerce Department said on Tuesday.
The overall trade gap for the month grew nearly 18 percent to $42.6 billion, an increase of $6.4 billion over the surprisingly low September deficit. The level was about in line with analyst expectations, which forecast $41.8 billion, as the deficit returned to trend.
The gap was 2.1 percent lower than October 2015, and for the year-to-date the trade deficit is tracking about $10 billion lower than the first 10 months of 2015.
However, economists warn that if exports remain soft in the final two months of the year it could create a drag on fourth quarter growth, while the strong dollar will only help boost imports.
Amid a steady stream of tweets from US president-elect Donald Trump on China and trade, including threats to slap punitive tariffs on imports, trade with China stood out in the report as US exports to the country reached their highest level since December 2013 at $13 billion.
The deficit with China shrank 4.2 percent to 31.1 billion in the month, in part due to a 27 percent rise in US passenger car exports to $939 million, even while imports from China were at their highest in the past year at $44.3 billion.
For the first 10 months of this year, the deficit with China is $20 billion lower than at the same point of 2015, the data show.
Total US exports fell $3.4 billion to $186.4 billion as sales of soybeans fell 30 percent or $1 billion from the sharp surge in September. Corn exports fell 36 percent. Civilian aircraft engine sales were up nearly 5 percent to $3.2 billion but exports of aircraft fell 9.5 percent to $5.3 billion.
Organic chemicals
Economists say the decline in exports if continued in the fourth quarter will subtract more than half a point from growth, and potentially higher.
“If sustained in November/December, the October levels would result in net exports subtracting about a point from the real GDP growth rate in Q4, after they directly accounted for 0.9 points of the 3.2 percent growth rate in Q3,” said Jim O’Sullivan, chief US economist for High Frequency Economics.
While noting “exaggerated strength in farm exports in Q3”, O’Sullivan said the drag is unlikely to be that big. “Our 2.3 percent forecast for the Q4 GDP growth rate assumes a 0.6-point drag from net exports.”
Mickey Levy of Berenberg Capital Markets also looks for a 0.6-point drag on economic growth in the final quarter of the year, but said economic outlook is improving.
Even so, “foreign trade is a wild card because of the stronger US dollar and uncertainties about the policies of the incoming Trump administration and how they may affect trade”, Levy said in a research note.
“For now, the expectation is that the boost in economic activity from likely tax reform, infrastructure spending and an easing of burdensome regulations will stimulate stronger economic growth while increasing the demand for foreign goods and widening the US foreign trade deficit,” he said.
The report showed the surplus in services was about steady, with exports of $63.3 billion and imports of $42.4 billion. But the goods deficit remains substantial: exports fell in the month to $123.1 billion while imports rose slightly $186.5 billion.
Among the details about imports, Americans bought 24 percent fewer organic chemicals, valued at $1.8 billon for the month, and saw crude imports nudge 2.4 percent upwards to $9.1 billion.