US Trade Deficit Falls In 2019, First Drop In 6 Years

The US trade gap narrowed last year for the first time since 2013 after President Donald Trump escalated trade confrontations, causing imports from China to plunge, according to data released Wednesday.

The narrowing of the US trade gap -- the stated goal of Trump's trade policy -- comes after a year when the deficit reached its highest level in a decade.

The total trade deficit shrunk by nearly $10 billion to $616.8 billion in 2019 as exports fell by 0.1 percent and imports dropped 0.4 percent, the Commerce Department reported.

Excluding services, the US deficit in goods fell by nearly $20 billion to $866 billion last year, as imports of Chinese products hit by Trump's punitive tariffs dropped 17.6 percent, according to the report.

That decline was offset by big increases in imports from top US trading partners Canada, which surged 42 percent, and Mexico, which jumped 26 percent.

In addition to the trade conflicts, the strong US dollar put American exports at a disadvantage, while China's slowing economy weakened the yuan and boosted exports from that country.

And while shrinking the deficit was the goal of Trump's trade policy, it is not necessarily good news because a drop in exports often reflects a slowing economy.

In fact, growth in the world's largest economy slowed in 2019 to 2.3 percent compared to 2.9 percent in 2018, as business sharply curtailed investment due to the trade uncertainty.

"The trade war hit to business capex and especially the imposition of tariffs on an array of Chinese consumer goods on September 1 are likely to blame for the import collapse," Ian Shepherdson of Pantheon Macroeconomics said in an analysis.

He warned that, "Firms appear to have met demand by running down inventory, but that can't go on forever."

Imports of materials like plastics and crude petroleum intended for the manufacturing sector, which has been in recession for months, fell by 9.3 percent.

Imports of capital goods, such as computer accessories and telecommunications equipment, also declined as American companies curbed their investments due to the uncertainty surrounding the trade war.

However, imports of everyday consumer goods such as clothing, sports shoes and kitchen utensils continued to increase, illustrating the solid performance of household consumption which largely supported the expansion of American growth.

Americans were also more fond of cars imported from abroad.

On the export side, soybean exports rebounded 8.2 percent, but that did not compensate for their collapse of more than 18 percent in 2018 due to Chinese retaliation over US tariffs.

US exports were also weighed down by the Boeing 737 MAX crisis, since the aerospace giant is a major contributor to foreign trade.

The company's top-selling aircraft was grounded worldwide in March 2019 following two deadly crashes, and exports of civilian aircraft fell 22.2 percent.

In December alone, the US trade deficit jumped 11.9 percent to $48.9 billion, which came as trade tensions with China eased.

The truce between the world's top economic powers came in mid-January with the signing of a "phase one" trade agreement, which nonetheless left most of the tariffs in place.

China has pledged to purchase an additional $200 billion worth of US goods over the next two years.

But these purchases may be delayed by the new coronavirus outbreak in China, which is expected to slow economic growth at least in the first three months of the year.