US Trade Deficit Shrinks to Lowest Since 2009

Is the US winning the trade war? 

On Thursday, the Commerce Department announced the US trade deficit fell to the lowest monthly level since 2009 in October. Economists expected a much wider deficit of $58 billion, compared with the reported $29.4 billion. Some see an encouraging sign of progress toward the White House’s goal of shrinking the trade gap, which President Trump has argued is the result of foreign countries taking advantage of America’s economic might. Others see a math problem.

The ‘No Grudge’ Economy 

US Customs and Border Protection said last month that it collected over $200 billion in tariff revenue last year, the result of more than 40 executive orders imposing entry taxes on goods coming into the US. Trump’s stated aim has been to change the fact that the US has a negative trade balance “with almost every country,” which he has called “unfair.” 

In any case, the newly released figures show Trump’s desired effect taking place, at least in one monthly snapshot. Imports fell 3.2% from the previous month to $331.4 billion in October, and exports rose 2.6% to $302 billion. The overall trade deficit was 40% smaller than in September. Some say this could offer a tailwind for economic growth:

• The Federal Reserve Bank of Atlanta suggested Thursday that October’s shrunken trade deficit will provide a boost to fourth-quarter gross domestic product. Officials raised their forecast for real GDP growth in the three months through December 31 to 5.4%, up from their earlier forecast of 2.7% on Monday, noting the estimated contribution of net exports went “from -0.3 percentage points to 1.97 percentage points.”
• “The US appears to be winning the trade war, with tariffs curbing the imports of foreign goods, but America’s trading partners are not holding any grudge as they continue to buy more American goods and services,” wrote Fwdbonds Chief Economist Chris Rupkey.

Golden Caveat: Economists at Wells Fargo are not sold, arguing gold market trading activity distorted the numbers: Gold and other metal exports climbed $10 billion in October, or more than the $7 billion monthly increase in all exports. “Ultimately, this sharp narrowing in the October trade deficit is almost entirely due to the movement of gold,” they wrote. Pharmaceutical imports also fell dramatically in October, amid Trump’s threat of 100% tariffs, but many drugmakers have since reached deals to avoid them, suggesting the industry may do less to shrink the deficit in future quarters. To top it all off, the Supreme Court could rule as early as today on a case with the potential to block Trump’s use of emergency economic powers to enact tariffs. Buckle up.