The gaping US trade deficit widened for a fifth straight month, as Americans bought $55.5 billion more in goods and services from abroad than they sold in October. The last time the deficit was this big was a decade ago, in October 2008.
Shrinking exports are the biggest reason for America’s yawning trade deficit. US goods exports shrank slightly in October versus the previous month, with big drops in soybeans and industrial supplies.
Likely culprits include slowing global growth momentum, as well as the trade spat with China.
As for imports, Donald Trump’s fiscal stimulus has for months now sustained buoyant American demand for foreign stuff. In October, that trend slowed a bit. In fact, adjusting for price distortions, imports actually slipped slightly, versus September. That could mean surging domestic demand may finally be losing some momentum as the fiscal boost wears off.
Could it also have something to do with the higher tariffs Trump has imposed? That would seem possible. After all, in 2017, China supplied about 22% of all foreign goods bought by Americans, by value. Then, in late September, new US tariffs on a sweeping range of Chinese goods went into effect, which you might have expected to dampen demand. Not the case, though.
In fact, imports of Chinese goods hit a record-high $52 billion in October. The brewing US-China trade war may have had the counterintuitive effect of stimulating import activity. The 10% tariff rate set by the White House was to jump to 25% as of Jan. 1, 2019. (Last weekend, however, Trump deferred that increase for 90 days after talks with Xi Jinping, chairman of the Chinese Communist Party, at the G20 summit.)
It’s all more proof that Trump’s trade policy—a chaotic collection of tariffs, threats of tariffs, truces, “truces,” and miscellaneous tweeted biliousness—continues to have no easily discernible cause-and-effect relationship with trade activity. The roiling uncertainty about exactly which tariffs are coming—and when—is shaping individual business and consumer behavior in ways impossible to generalize about. And that means it’s still way too early to out-and-out condemn Trump for having achieved the opposite of his cherished goal of zipping shut America’s bulging trade deficit.
If there’s one useful thing to conclude from today’s US trade release, it’s that net exports will very likely weigh on fourth-quarter GDP growth, says Nikhil Sanghani, economist at Capital Economics, in a note. (They did that in Q3 too, by the way.)
This isn’t exactly something to get jittery about. With other economic data looking pretty solid—for instance, today’s robust ISM non-manufacturing survey—Capital Economics projects Q4 annualized growth in the range of 2.5% to 3%.