US trade deficit shrinks sharply as imports tumble

THE US trade deficit contracted by the most in nearly 14 years in November as slowing domestic demand amid higher borrowing costs depressed imports.

The trade deficit decreased 21.0 per cent to US$61.5 billion, the lowest level since September 2020, the Commerce Department said on Thursday (Jan 5). The percentage decline in the trade gap was the largest since February 2009.

Imports tumbled 6.4 per cent to US$313.4 billion, with goods dropping 7.5 per cent to US$254.9 billion. Consumer goods imports were the lowest since December 2020.

The Federal Reserve last year hiked its policy rate by 425 basis points from near zero to a 4.25 per cent-4.50 per cent range, the highest since late 2007. Last month, it projected at least an additional 75 basis points of increases in borrowing costs by the end of 2023.

The higher rates have boosted the US dollar, which gained 5.4 per cent against the currencies of the United States’ main trade partners last year.

US dollar strength is making US manufactured goods less competitive on global markets. Monetary policy tightening by global central banks is also eroding demand.

Exports fell 2.0 per cent to US$251.9 billion, with goods shipments dropping 3.0 per cent to US$170.8 billion. But exports of automotive vehicles, parts and engines were the highest since August 2019.

A smaller trade deficit contributed 2.86 percentage points to the economy’s 3.2 per cent annualised growth pace in the third quarter. Growth estimates for the fourth quarter are as high as a 3.9 per cent rate. REUTERS