U.S. Trade Deficit Narrows In Line With Estimates In September

U.S. Trade Deficit Narrows In Line With Estimates In September

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So on May 10, the U.S. Treasury finally raised tariffs on Chinese products to 25% and on September 1 another new tariff entered into force on goods worth $300 billion.

China imported about $120 billion in US products in 2018 and just over $70 billion as of August this year, according to Census Bureau data.

Again on September 24, 2018, tariffs of 10% on Chinese goods valued at $200 billion entered into force and were scheduled to increase to 25% in January, but President Trump postponed the increase because of the good progress of negotiations between the two countries.

In September, overall USA exports fell 0.9 per cent to US$206 billion, including a US$1 billion drop in exports of soybeans, one of the political bargaining chips China has used to pressure the United States side in trade discussions.

The sector hit hardest by the US tariffs are USA imports of Chinese office machinery and communication equipment, which fell by $15 billion. Companies may have sought to avoid paying the higher prices by stocking up before the levies were imposed.

The deficit with China has dived 13.1 percent so far this year to $266.4 billion but the gap with Mexico over the same period has skyrocketed by 29.4 percent, underscoring the rebalancing of trade relations under Trump's trade offensive. Officials are now wrangling over the extent to which the Trump administration will roll back previous tariff increases before the sides sign the deal, according to people briefed on the discussions.

As we highlighted in our recent piece on who is winning the US-China trade war, while China is obviously feeling some pain, the deterioration in the trade balance of what is likely to be around US$60bn this year equates to around 0.5 percentage points of Chinese GDP. In the first nine months of 2019, merchandise imports from China are down 13.5% and exports to the country have dropped 14.6%, according to Commerce Department data.

The politically sensitive deficit with China edged down 0.6% to $31.6 billion.

Over time, Chinese companies began absorbing some of the extra costs of the tariffs through an 8% dip in export prices in the second quarter of 2019, but that still left 17% "on the shoulders of USA consumers", said the report's author Alessandro Nicita, an economist at UNCTAD. However, the details suggest that there is no clear 'winner with imports from China falling 4.9% while USA exports to China fell by 10%.

In September, the United States recorded a $71.7 billion deficit in the trade of goods such as cars and appliances.

The U.S. has increasingly been getting a boost from domestic oil production and is now a net exporter. While the petroleum surplus of US$252 million was the first since 1978, it reflected both a drop in exports of USA oil and a larger decline in imports of foreign oil, a possible outgrowth of the recent weakness in manufacturing. Excluding the commodity, the goods deficit narrowed to $70.8 billion from $72.8 billion. This is the smallest deficit since April.

Exports of capital goods ticked up by US$800 million, including a US$700 million rise in exports of civilian aircraft.

Analysts will use Tuesday's figures to estimate potential revisions to third-quarter gross domestic product, which expanded at a 1.9% annualized pace, faster than expected.

Economists polled by Reuters had forecast the trade gap would fall slightly to US$52.5 billion in September.

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