US trade deficit rises to nine-month high in October

Author: Agencies

WASHINGTON: The US trade deficit increased more than expected in October, hitting a nine-month high as rising oil prices helped to boost the import bill, suggesting that trade could be a drag on growth in the fourth quarter.

The Commerce Department said on Tuesday the trade gap widened 8.6 percent to $48.7 billion. That was the highest level since January and followed an upwardly revised $44.9 billion shortfall in September.

Economists polled by Reuters had forecast the trade deficit widening to $47.5 billion in October after a previously reported $43.5 billion deficit the prior month.

When adjusted for inflation, the trade deficit increased to $65.3 billion, also the largest since January, from $62.2 billion in September. The so-called real trade deficit in October was above the third-quarter average of $62.0 billion.

That suggests trade could subtract from gross domestic product in the October-December quarter, if the deficit does not shrink in the last two months of the year. The chronic trade deficit has garnered the attention of Republican President Donald Trump, who has blamed it for the massive loss of US manufacturing jobs as well as moderate economic growth.

Trump, who argues that the United States has been disadvantaged in its dealings with trade partners, has ordered the renegotiation of the North American Free Trade Agreement (NAFTA), which was signed in 1994 by the United States, Canada and Mexico.

NAFTA talks have stalled, with Mexico and Canada rejecting a US proposal to raise the minimum threshold for autos to 85 percent North American content from 62.5 percent as well as to require half of vehicle content to be from the United States.

The government reported last month that trade contributed 0.43 percentage point to the economy’s 3.3 percent annualized growth pace in the third quarter. The Trump administration believes that a smaller trade deficit, together with deeper tax cuts could boost annual economic growth to 3 percent on a sustained basis.

Republicans in the US Congress have approved a broad package of tax cuts, including slashing the corporate income tax rate to 20 percent from 35 percent. But the planned fiscal stimulus will come at a time when the economy is at full employment, which will boost imports and widen the trade gap.

Imports of goods and services increased 1.6 percent to a record $244.6 billion in October. Goods imports were the highest since May 2014 amid a $1.5 billion increase in crude oil imports. Imported oil prices averaged $47.26 per barrel in October, the highest since August 2015. The country’s import bill was also pushed up by food imports, which were the highest on record. There were also increases in imports of cellphones and other goods. Imports from China and Mexico were the highest on record in October. Exports of goods and services were unchanged at $195.9 billion in October as shipments of soybeans fell $1.4 billion. Exports of civilian aircraft dropped by $1.1 billion.

Published in Daily Times, December 6th 2017.

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