Deficit in goods and services rose to USD 57.6 billion in February, the sixth straight monthly increase
The U.S. trade position worsened in February, raising the stakes in the Trump administration’s intensifying effort to narrow the gap between what the U.S. imports and what it sells abroad.
The trade deficit in goods and services rose to USD 57.6 billion in February, the Commerce Department said Thursday, the sixth straight monthly increase and the widest the gap has been since October 2008, when it was USD 60.2 billion and the U.S. was deep in recession.
For the first two months of the year, the deficit was USD 114.3 billion, 23 % wider than a year earlier. Imports were up USD 44 billion, or 9.1 %, for the first two months of the year from a year earlier. Exports grew 5.9 %, or USD 22 billion, in the first two months of the year from a year earlier.
Concurrent increases in imports and exports point to robust global economic activity, good news for the U.S. and its trade partners. A strong U.S. economy means households and businesses are importing more computers, turbines and other goods, while robust growth abroad increases demand for U.S. goods and services.
But faster growth of imports could increase global trade tensions, particularly with China. The Trump administration last week said it would slap USD 50 billion in tariffs on Chinese goods, retaliation for what it calls China’s unfair trade practices and theft of U.S. intellectual property.
The U.S. trade deficit with China hit USD 65 billion in the first two months of the year, up from USD 54 billion in the first two months of 2017.
The nation’s growing trade deficit pointed to another challenge that economists call “twin deficits.”
U.S. trade deficits are rising at a time of growing federal budget deficits, related developments. Tax cuts and spending increases are increasing the gap between what the government collects in revenue and what it spends on entitlements, military and other programs. The widening budget deficit stimulates economic activity and helps drive up imports and trade deficits.
“Burgeoning twin deficits beg the question: where will the funding for all this spending come from?” asked Oren Klachkin, lead economist at Oxford Economics, in a note to clients. “Foreign capital inflows must make up for the shortfall.”
The federal budget deficit hit USD 665 billion in 2017, and is projected to widen to more than USD 800 billion this year. An Oxford Economics analysis projects the deficit will widen from about 3.5% of gross domestic product last year to over 4.5 % by 2020.
When domestic saving is not enough to cover investment, the balance is made up from abroad, resulting in larger trade deficits and an inflow of funds from abroad.
Historically, countries with big fiscal and current-account deficits have been prone to currency weakness. The Federal Reserve’s broad index of the dollar’s value against U.S. trade partners is down 8 % since early 2017.
“If foreign demand were to weaken, there may be a significant depreciation of the dollar and/or a substantial jump in U.S. interest rates, which could potentially choke off the U.S. economic expansion,” Mr. Klachkin said.
The February increase in exports was driven by higher spending abroad on industrial supplies and materials, such as crude oil and nonmonetary gold, and vehicles, car parts and engines from the U.S. The rise in imports reflected a jump in sales of capital goods, including civilian aircraft and computers, and ramped up spending on food, feeds and beverages. Meanwhile the services surplus narrowed because of television royalties related to the winter Olympics.