Sunday, August 18, 2019
Martin Hennecke

US trade deficit dip fails to alter trend
President Donald Trump had underscored his desire to reduce the trade gap with China in his State of the Union speech on Tuesday, yet the deficit is on track to balloon again this year as a solid economy boosts American demand for imports.

The total US deficit in goods with China jumped by US$37.6 billion (HK$293 billion), or 10.9 percent, in the first 11 months of 2018 compared with a year earlier, according to Commerce Department figures that were updated Wednesday with November data.

That brought the year-to-date US trade gap with the world's second-largest economy to US$382.3 billion - more than five times the next-largest deficit, with Mexico - keeping the trend of widening intact despite the China gap narrowing by US$5.2 billion in November on a monthly basis to a five-month low.

The smaller gap spurred some analysts to boost tracking estimates of fourth-quarter economic growth, with JPMorgan Chase raising its projection to a 2.6 percent annualized pace from 2.2 percent.

Trump has vowed to tackle the imbalance of imports and exports with China, saying during his speech that one of his goals in negotiating with President Xi Jinping is to "reduce our chronic trade deficit."

The data show that despite tariffs on Chinese goods, US consumers and companies keep buying items from the country, importing 7 percent more merchandise in the first 11 months of 2018 than the same period in 2017. The threat of future tariffs also had the effect of pushing companies to stockpile goods, which in some months inflated imports from China, which accounts for about one-fifth of total US imports.

The deficit with China also widened in advanced technology products, which include aerospace, electronics and communications. US imports of such items from China increased in the first 11 months of 2018 by about $6 billion to US$160.1 billion, though they were down about US$1 billion in November from October. .

"It is possible that some of the consumer goods imports were brought into the country in greater numbers to build a stockpile before the import tariffs took effect or grew even worse," said Chris Rupkey, chief economist at MUFG in New York. "The good news is this will temporarily boost real GDP in the fourth quarter."

Meanwhile, Federal Reserve Chairman Jerome Powell said the US economy remains in a good place and has proved resilient so far to shocks like the British decision to leave the European Union. "The US economy is now in a good place," with low unemployment and inflation near the Fed's 2 percent target, Powell said in a question-and-answer session with economics educators in Washington and telecast to Fed branches nationwide. "We've had some big events, some surprises like Brexit...and the system has been strong," he said.

Former Federal Reserve chair Janet Yellen said yesterday the next move of Fed may be an interest rate cut if the weakening of global economic growth spreads to the Unied States. "Of course it's possible. If global growth really weakens and that spills over to the United States where financial conditions tighten more and we do see a weakening in the US economy, it's certainly possible that the next move is a cut," she said to an interview with CNBC. "But both outcomes are possible."

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