US trade deficit falls in 2019 for the first time in six years

[WASHINGTON] The US trade deficit dropped for the first time in six years in 2019 as the White House's trade war with China curbed the import bill, helping the economy to continue growing moderately in the fourth quarter despite a slowdown in consumer spending.

The Commerce Department said on Wednesday the trade deficit fell 1.7 per cent to US$616.8 billion last year, the first drop since 2013. Goods imports tumbled 1.7 per cent last year, with exports decreasing 1.3 per cent, showing that the Trump administration's "America First" agenda decreased the flow of goods.

Goods imports, however, rebounded sharply in December, boosting the trade deficit 11.9 per cent to US$48.9 billion that month. Data for November was revised to show the gap tightening to US$43.7 billion instead of US$43.1 billion as previously reported. Economists polled by Reuters had forecast the trade gap would widen to US$48.2 billion in December.

President Donald Trump, who has dubbed himself "the tariff man," pledged on both the campaign trail and as president to reduce the deficit by shutting out more unfairly traded imports and renegotiating free trade agreements.

At the height of the US-China trade war last year, Washington slapped tariffs on billions worth of Chinese goods, including consumer products, leading to a decline in imports.

Tensions in the 19-month U.S.-China trade war have eased, with Washington and Beijing signing a Phase 1 trade deal last month. The deal, however, left in place US tariffs on $360 billion of Chinese imports, about two-thirds of the total.

The White House has also sparred with other trading partners, including the European Union, Brazil and Argentina, accusing them of devaluing their currencies at the expense of US manufacturers.

The politically sensitive goods trade deficit with China fell 6.0 per cent to US$24.8 billion in December, with imports shrinking 7.7 per cent and exports falling 12.2 per cent. It tumbled 17.6 per cent to US$345.6 billion in 2019. But the goods trade deficit with Mexico jumped to a record high of US$101.8 billion last year. The deficit with the European Union also reached an all-time high of US$177.9 billion.

When adjusted for inflation, the goods trade deficit increased US$4.3 billion to US$80.5 billion in December.

Trade added almost 1.5 percentage points to GDP growth in the fourth quarter, exceeding the 1.20 percentage points contribution from consumer spending, which accounts for more than two-thirds of US economic activity.

The economy grew at a 2.1 per cent annualised rate in the fourth quarter, matching the pace notched in the July-September period. It expanded 2.3 per cent in 2019, which was the slowest in three years, after growing 2.9 per cent in 2018.

In December, goods imports surged 3.2 per cent to a seven-month high of US$207.5 billion, after declining for three straight months. Goods imports were boosted by a US$1.7 billion increase in crude oil imports, which contributed to a US$4.0 billion jump in imports of industrial supplies and materials. There was also a US$1.2 billion increase in imports of other goods.

Economists believe a 15 per cent tariff on US$110 billion worth of Chinese goods that came into effect on Sept 1 had weighed on imports in the prior months. They also say anticipation that the Phase 1 trade agreement would roll back the tariffs could have encouraged companies to hold off on imports in late 2019.

Goods exports rose 0.9 per cent to US$137.7 billion in December. They were lifted by a US$1.5 billion jump in shipments of crude oil as well as a US$1.0 billion increase in exports of other goods. But motor vehicle and parts exports fell US$1.0 billion to US$12.4 billion, the lowest since Nov 2016.

At US$17.1 billion, petroleum exports in December were the highest on record. 

REUTERS