The U.S. trade deficit is dropping to over three years

The U.S. trade deficit dropped to a more than three-year low in November as imports continued to decline, possibly weighed down by the trade war with China waged by the Trump administration, and exports rebounded, indicating that the economy ended solidly in 2019. The trade deficit fell by 8.2 per cent to $43.1 billion, the smallest since October 2016, according to the Department of Commerce.

The trade deficit has narrowed by November by 0.7 percent, and is on track to mark its first annual decrease since 2013. While the shrinking trade bill in the fourth quarter would give a boost to gross domestic product, dropping imports of consumer goods also imply a cooling in domestic demand. The October data was updated to show the trade gap declining to $46.9 billion instead of the $47.2 billion stated previously. In November, surveyed economists had forecasted a trade deficit of $43.8 billion.

The trade deficit with China, the cornerstone of the "America First" policy of the White House, has fallen by 15.7% to $26.4 billion, with imports dropping by 9.2% and exports rising by 13.7%. The European Union trade gap in goods dropped by 20.2 per cent to $13.1 billion.

The U.S. and China are engaged in a grinding trade war and Washington has also tussled with other trading partners, including the European Union, Brazil, and Argentina, accusing them of devaluing their currencies at the expense of U.S. manufacturers.

President Donald Trump said at the White House last Tuesday that the provisional deal would be signed on January 15. While Washington and Beijing worked out a "Phase 1" trade agreement in December, the details of the agreement remain considerably confused.

The U.S .- China trade war, which lasted 18 months, has disrupted business investment, which has led to a slowdown in manufacturing along with slowing growth abroad. Economists expect manufacturing to keep struggling without a complete reversal of tariffs.

The so-called real trade deficit in the fourth quarter so far since March 2017 is below the average for the July-September period. Economists expect trade to add at least 1.5 percentage points to GDP growth in the fourth quarter, after a two-quarter drag.

The Atlanta Federal Reserve expects GDP growth in the fourth quarter at an annualized rate of 2.3 per cent. In the third quarter, the economy grew at a rate of 2.1 per cent. Imports of goods dropped to $201.1 billion by 1.4 per cent in November, declining for a third straight month. Imports of consumer goods were down $1.0 billion, pulled down by declines in cell phones and other household items, as well as artwork and other collectibles. Economists believe that imports of consumer goods were weighed down by a tariff of 15 per cent on Chinese goods worth $110 billion, which came into effect on Sept. 1..

Moreover, the trade agreement "Phase 1" would be rolling back the tariffs could have encouraged companies to hold off on imports. The drop in imports of consumer goods points to a slower pace of consumer spending in the quarter of October to December after two straight quarters of rapid growth.

Imports of capital goods dropped $1.2bn in November, reflecting falls in civilian aircraft and computers. Crude oil imports tumbled to 166.4 million barrels from 188.3 million barrels in October, the lowest since February 1992. Nevertheless, imports of motor vehicles and parts were up $1.1 billion. Exports of products rose in November by 0.7 per cent to $137.2 billion. These were helped by a 0.6 billion dollar increase in capital goods shipments. Exports of consumer goods went up $0.5 billion. The November retail trade deficit was the lowest since October 2016. November's $0.8 billion petroleum surplus was the highest on record.