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US trade deficit drops in January as imports from China fall

File photo. Photograph:( Reuters )

AFP Washington, DC, USA Mar 27, 2019, 08.45 PM (IST)

The US trade deficit dropped nearly 15 per cent in January compared to December, largely due to declining imports from China, the Commerce Department reported Wednesday.

Economists say the decline could help support growth in the first three months of the year, which would be a welcome development amid signs the world's largest economy has peaked.

The drop reversed most of the expansion in the trade gap posted in the final month of 2018, a year that saw the deficit surge to a 10-year record, despite President Donald Trump's aggressive tariff policies.

The trade gap in December surged nearly 19 per cent to $59.9 billion but fell back to $51.1 billion in January, the report said.

Analysts had been expecting a much more modest narrowing of the January deficit, which also was 3.7 per cent smaller than it was a year earlier.

US imports fell 2.6 per cent to $258.5 billion while exports rose just under 1 per cent to $207.3 billion, according to the data.

And the deficit in goods alone with China -- the primary foe in Trump's trade wars -- fell by $5.5 billion in the month to $33.2 billion, according to the report, almost entirely due to declining American purchases of Chinese goods.

The falling average price for oil, which hit the lowest point in three years, also helped narrow the trade gap by $1.4 billion.

In addition to the impact of tariffs on trade with China, the stronger-than-expected decline in the trade deficit could reflect the slowing in the US and global economies.

However, some economists say the smaller trade gap should add to first quarter growth.

Subdued exports

"The data look consistent with net exports adding at least a few tenths to the growth rate in Q1," said Jim O'Sullivan of High Frequency Economics.

Ian Shepherdson of Pantheon Macroeconomics said it is too early to tell the exact impact, but "we’re penciling-in a 0.3 percentage point contribution to GDP growth."

"The record December deficit always looked like an outlier, and data on container movements at major ports pointed clearly to a reversal in January," said Shepherdson, who unlike his counterparts correctly forecast the trade gap.

However, others caution that a cooling global economy means export momentum likely will be subdued, which could lead to a continued rise in the deficit, especially as a strong US dollar makes imports cheaper, despite the impact of tariffs.

US goods exports to China fell to just $7.1 billion, not adjusted for seasonal factors, the lowest since September 2010.

The goods balance with Canada shifted to a surplus of $1.4 billion, while the deficit with Mexico narrowed more than $1.5 billion to $7.2 billion, and with the European Union fell more than $2.5 billion to $13.1 billion.

But in services, where the US is a dominant force, exports were the highest on record at $70 billion, according to the report.

Story highlights

Economists say the decline could help support growth in the first three months of the year, which would be a welcome development amid signs the world's largest economy has peaked.