TRADE ALERT

The U.S. monthly international trade deficit decreased in January 2019 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit decreased from $59.9 billion in December (revised) to $51.1 billion in January, as exports increased and imports decreased. The previously published December deficit was $59.8 billion. The goods deficit decreased by $8.2 billion in January to $73.3 billion. The services surplus increased by $0.5 billion in January to $22.1 billion. On an unadjusted basis, the merchandise trade deficits with Mexico, Canada, and Europe all narrowed.

The U.S. trade deficit narrowed from the widest level in a decade as imports from China plunged, suggesting American companies had been rushing shipments the prior month to beat an expected tariff boost. The report was delayed three weeks from the original date because of the government shutdown earlier this year, and the Commerce Department canceled the release of the preliminary January figures on merchandise trade.

Overall exports increased to $207.3 billion, with gains in cars, trucks, jewelry, and consumer goods. Aircraft shipments decreased. Imports decreased to a seven-month low of $258.5 billion, dragged down by computer accessories, semiconductors, and oil.

Soybean exports more than quadrupled to $1.2 billion, which may reflect increased purchases by China after the country pledged to buy more of the crop. At the same time, overall exports to China fell to $7.1 billion, the lowest since 2010 on an unadjusted basis.

There are fresh signs that cooling global growth may weigh on exports of American-made goods. This month, the Organization for Economic Cooperation and Development (OECD) cut its 2019 global growth forecast to 3.3 percent from 3.5 percent, China lowered its growth target, and the European Central Bank slashed its projection for the region. Europe took the brunt of the downgrades. While the U.S. outlook was lowered slightly, the U.K.’s 2019 forecast was cut to 0.8 percent from 1.4 percent, and Germany’s to 0.7 percent from 1.6 percent.

The global economy is suffering more than expected from trade tensions and political uncertainty which are clouding prospects, particularly in Europe. This is the OECD’s first forecasts in almost four months, and in that period, little has gone right for the world’s biggest economies. Weakness in Europe and China are proving more persistent, trade growth has slowed sharply, and uncertainty over Brexit has continued.

U.S. and Chinese officials resume talks this week on a deal that could be a step toward economic peace, with signs that both sides want to avoid any escalation of the eight-month trade war. These numbers will likely embolden the Trump administration to hold firm to their negotiating position as they will interpret the narrowing of the trade deficit as their tariffs are working.

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