A weak global economy tied to a strong dollar continued to hurt America’s exports as the country’s trade deficit rose to a six-month high in February.
The U.S. trade deficit for February was $47.1 billion, a $1.2 billion increase from January, the Department of Commerce announced on Tuesday. The gap was wider than expected; economists surveyed by Bloomberg had a median estimate of $46.2 billion with a range from $41.6 billion to $48.3 billion.
February imports increased by $3 billion from the previous month to $225 billion while exports increased by $1.8 billion to $178.1 billion. The quicker growth in imports than exports in the U.S. reflects a struggling global economy and the strong dollar, which makes American goods and services more expensive in other countries and foreign imports cheaper in the U.S.
Petroleum exports were at a low of $6.3 billion, down by $245 million from January but the petroleum balance has been tightening since November. The petroleum deficit for February rose to $3.55 billion, a 23.15 percent increase from January.
“It just reiterated that trade will remain a drag on the U.S. economy through the rest of the year because of past appreciation of the dollar and the global economy having a difficult time emerging from its rut,” said Ryan Sweet, director at Moody’s Analytics.
The Department of Commerce trade report doesn’t reflect the current state of the dollar, which has grown weaker against the Euro and the Japanese Yen. Dollars per Euro have gone from $1.09 on the first of January to $1.14 as of April 1. The Japanese exchange rate has dropped from 120.19 Yen per dollar to 1.12 Yen per dollar as of April 1.
A declining dollar will not impact the trade balance immediately, so the trade deficit continues to reflect the strength of the dollar from 2015. As the dollar weakens, it could narrow the trade gap.
A deficit with America’s second largest trade partner, the European Union, decreased to $10.6 billion in February from $12.6 billion. The U.S. trade deficit with Japan decreased slightly to $5.4 billion from January’s $5.6 billion.
The U.S. deficit with Canada, America’s biggest trading partner, hit almost $1 billion, an increase of $332 million from January.
The deficit with China, another important trading partner, was the highest at $32.1 billion, a $1 billion increase from the previous month.
China is the biggest importer of U.S. soybean exports. United States Drug Administration released a forecast yesterday that China will import 83 million tons of soybeans from around the world, accounting for 60 percent of total soybean imports. The U.S. has exported 26.7 million tons of soybeans to China since September, the start of a current soybean marketing year.
Exports of U.S. soybeans are expected to decline this year from 50.17 million tons to 46.4 million tons, based on USDA estimates. Soybean meal from the U.S. is expected to decrease from 11.9 million tons last year to a predicted 10.16 million this year.
“It’s simply the case that we’ve run into a perfect storm of a high value dollar and weak currencies in Argentina and Brazil where they had record crops,” said John Baize, an independent oil seed industry consultant and advisor to United Soybean Board.
Baize predicts that soybean exports will keep declining unless weather strikes and diminishes soybean crops or the dollar weakens relative to competitors, such as Argentina and Brazil.
While a widening trade deficit is not favorable, trade is only a fraction of the U.S. gross domestic product. The economy is benefitting from the strength of the American consumer, as seen through an increase of $3.6 billion in the import of consumer goods.
“The good news is that the US economy isn’t that overly reliant on trade,” said Sweet. “It only makes up a small portion of US gross domestic product, so I think our economy can still move forward even if trade is a drag.”
Based on this month’s U.S. trade report, Hugh Johnson, chairman of Hugh Johnson Advisors predicts a net exports subtraction of 19 to 20 billion dollars for the first quarter for the U.S. gross domestic product, which will be released on April 28.
“The deficit dramatizes the importance of the dollar in our international trade,” Johnson said.
A decrease in exports for the near future is to be expected. Depreciation of the dollar, which makes American exports attractive to foreign markets, takes time to affect international trade and the global economy still shows weakness.
It could take anywhere from eight months to a year and a half for a depreciated dollar to affect the trade balance.
“I think exports are still going to suffer unless the dollar continues to head south very quickly,” Sweet said.
