The United States’ trade deficit narrowed in January because of a steep drop in imports from China, but this improvement may only be temporary.
The latest data from the Commerce Department showed that the deficit shrunk 15 percent from a decade-high in December to $51.5 billion. Exports of goods and services rose 0.9 percent to $207.3 billion while imports fell 2.6 percent to $258.5 billion. There were export gains in auto parts and consumer goods while imports were weighed down by computer accessories and civilian aircraft.
The U.S.’s deficit with China, its biggest trading partner, shrunk by 14 percent. However, even with these narrowing gaps, the U.S.’s deficits with its most important markets are increasing and American exporters are still reeling from the retaliatory tariffs caused by President Trump’s trade war.
“If you look at the overall decline in imports for all countries, it was $6.8 billion,” said Tim Quinlan, a senior economist at Wells Fargo. “If you look at how much of that is attributable to China, it’s $5.7 billion, so really the big driver of the drop-off in imports is a function of us importing less from China.”
Many economists underestimated how much narrower the trade deficit would be in January in part because of a disruptive Chinese holiday and the U.S. government shutdown.
“January is right around Chinese New Year, so trade data can get a little choppy then,” said economist Ryan Sweet of Moody’s Analytics.
He added that economists had a harder time making predictions without the advance goods deficit report, which was never released because of the government shutdown.
However, the trade deficit’s surprising and significant decline might be temporary.
“Going forward you’re not going to see improvements of this magnitude month in and month out,” said Sweet.
The U.S. dollar continues to stay strong, making foreign imports more appealing to domestic consumers. With the global economy cooling, there’s also less demand for American goods abroad.
Even though imports are declining, exports are falling as well, and the U.S. is maintaining large trade deficits with key countries. Though imports from China fell in January, U.S. exports to the country also decreased 3 percent to $7.5 billion. In 2018, the U.S.’s trade deficit with the E.U. widened by 12 percent to $169.3 billion. U.S. exports to these markets have been restrained by the retaliatory tariffs implemented in response to President Trump’s trade war.
“The tariffs have a had a pretty traumatic effect on our business,” said Justin Flaten, president of JM Grain, which processes and exports crops. “We deal with chickpeas and lentils and peas and historically have exported about 75 percent of what we sell. Our business is a third of what it was before the tariffs were put in place.”
Located in Garrison, N.D., JM Grain deals with pulses, a crops category made up of chickpeas, lentils, peas and dried beans. The company buys these products directly from farmers in Montana and North Dakota and cleans and bags them to be sold to food manufacturers. While Flaten said the news has focused mainly on the retaliatory tariffs placed on soybeans, the trade war has been much more devastating for the pulse market.
Though the company experienced a three-year growth period, it has had to slash prices on chickpeas and lentils by two-thirds since the trade war began. Flaten said the reduced prices haven’t stopped major trade partners like China and the E.U. from purchasing pulse crops from other markets like Canada.
The U.S. has also seen its trade deficit with India grow as tariffs have slowed exports to the country. The world’s second-most populous country is the biggest market for U.S. pulse crops. In January, the trade deficit with India increased 260 percent to $1.9 billion. Exports dropped 20 percent to $2.7 billion. This month, President Trump stripped India of a special trade status that exempts billions of dollars worth of Indian exports from American tariffs, further boosting trade tensions and spelling more trouble for pulse exporters.
J.M. Grain has tried to refocus on the domestic market, which meant revamping their plants and processes to meet U.S. standards for pulse products.
“The domestic market requires third-party audits which are expensive,” said Flaten. “It’s the same, good-quality product, it’s just more expensive to certify it than it used to be.”
The company also had to reduce its 13-person administrative staff by three people to save money, including letting go of one employee who’d been with them 15 years.
“I never thought we’d have to do that,” said Flaten.
Photo by Sascha Hormel from Pexels
