US trade deficit narrows, but stays high with China

Goods and services trade deficit in the U.S. narrowed in the month of September from the previous month, but still remained high with China, according to a report released by the U.S. Commerce Department.

Trade deficit during the month at $44 billion, down from revised amount of $46.5 billion in August.
Total exports were $154.1 billion, while imports were $198.1 billion. Goods deficit dropped $2.2 billion from August to $56.9 billion, and the services surplus rose $0.2 billion to $12.9 billion.

The increase in export of goods was mainly due to foods, feeds and beverages, while the export of industrial supplies and materials dropped during the month.

The fall in imports reflected the decrease in consumer goods, the report stated. The import of capital goods, however, rose during the month. In the services sector, a rise in exports and imports was mainly seen in travel and other private services.

“The narrowing in the US trade deficit, to $44.0 billion from $46.5 billion in August, opens the door to a very small upward revision to the third quarter's GDP growth figure of 2.0 percent, as the BEA had assumed that the trade deficit was unchanged in September,” Paul Dales, an economist at Capital Economics, said in a note.

It is striking that, despite the weak economic recovery, the trade deficit has all-but doubled since the recession ended, he added. Dales expects the trade deficit to edge wider as the levels of imports is much larger than exports, as well as the easing in overseas activity that will dampen export growth.

However, goods and services deficit rose $8.8 billion from the same period last year. U.S. continued to report the highest trade deficit with China at $27.8 billion, followed by the OPEC at $8.9 billion.

Chinese officials may point to the narrowing in the US bilateral trade deficit with China, from $28.0bn in August to $27.8bn in September, as a sign that they are addressing global imbalances, Dales said. China's more up-to-date trade data suggest that the deficit narrowed further in October, he added.

Earlier on Wednesday, China reported a massive surge in trade surplus at $27.1 billion in October. Trade with the U.S. rose 30 percent to $310.71 billion in the first 10 months of the year, according to the report.

China and the U.S. have been grappling with high trade balance issues over the past several months as a weak yuan continues to result in imbalances between exports and imports between the two nations.

The U.S., along with the European Union has been pressurizing China’s policy makers to let the yuan appreciate, which would help U.S. increase its exports into China, as well as give Chinese people more purchasing power. A rise in domestic spending in China is considered crucial for the recovery of the global economy.

Reports of the trade balance of the two countries come a day before the G20 summit in Seoul, where currency valuation is expected to be one of the major topics for discussion. The U.S. has dropped its demand for member nations to reduce their economic imbalances to less than 4 percent of their output – a demand that was seen as being aimed at China’s massive trade surplus.

However, the Federal Reserve’s move to announce more quantitative easing last week has drawn criticism from China and several other emerging nations as it could result in a weaker dollar and cause further imbalance in the global economy.

As a deficit country, there is a clear incentive for the U.S. to put pressure on surplus countries. That's especially the case when monetary and fiscal policy are largely ineffective or paralysed by partisan disagreement, Dales said.

Separately, the U.S. Commerce Department announced that import prices rose 0.9 percent in October, helped by higher fuel and non-fuel prices. Non-fuel import prices rose 0.3 percent in October.
Export prices also rose 0.8 percent for the third consecutive month, while export prices excluding agriculture rose 0.7 percent from the previous month.