Trade war with China helps pare US November trade deficit to a 3-year low
08 January 2020
US trade deficit hit a more than three-year low in November as imports declined further thanks to an extended trade war with China and a revival in export business, which also helped the economy end 2019 with major gains.
The shrinking trade bill helped boost US gross domestic product in the fourth quarter, while falling consumer goods imports, especially from China, helped divert consumer demand to domestic products.
In fact, the third-quarter real GDP increased, reflecting an increase in consumer spending, government spending, housing investment, and exports, while business investment and inventory investment decreased.
Real gross domestic product (GDP) increased 2.1 per cent in the third quarter of 2019, according to the “third” estimate released by the Bureau of Economic Analysis – unchanged from the second revised estimate released in November. Real GDP in the second quarter rose 2.0 per cent.
US trade deficit decreased 8.2 per cent to $43.1 billion, the lowest since October 2016 and the largest percentage drop since January 2019, data released by the Commerce Department on Tuesday showed.
The trade deficit has narrowed 0.7 per cent through November and is on track to record its first annual decline since 2013.
Revised trade data for October also showed the trade gap declining to $46.9 billion down from the previously reported $47.2 billion.
The goods trade deficit with China declined 15.7 per cent to $26.4 billion, with imports dropping 9.2 per cent and exports jumping 13.7 per cent. The goods trade gap with the European Union fell 20.2 per cent to $13.1 billion.
When adjusted for inflation, the goods trade deficit decreased $3.7 billion to $75.3 billion in November. Real (inflation adjusted) trade deficit so far in the fourth quarter is below the average for the July-September period. Economists expect trade will add at least 1.5 percentage points to US GDP growth in the fourth quarter.
However, the trade war with China has undermined business investment, which together with slowing global economic growth led to a recession in manufacturing. Analysts expect the tariff war to have a decelerating effect on manufacturing.
The recently announced Phase-1 trade deal with China has not helped clarify the position and businesses continue to seek solutions.