US Trade Deficit Narrows to Eight-Month Low in February

The U.S. trade deficit dropped 3.4 percent to $49.4 billion in February, driven by a sharp decline in imports from China and a surge in exports of commercial aircraft, the Commerce Department said Wednesday.

The combined $2.2 billion in sales of commercial aircraft to international airlines, and a $1.5 billion plunge in imports from China led to the narrowest U.S. trade gap since June 2018.

February was the second straight month that the deficit declined. In January it had dropped 14.6 percent to $51.1 billion.

Overall, exports climbed 1.1 percent in February to $209.7 billion on a surge in shipments that in addition to aircraft including larger numbers of passenger cars and medicine.

Imports rose 0.2 percent to $259.1 billion, the department said, led by $2.1 billion in purchases of cell phones and other household goods.

The politically sensitive deficit with China dropped 28.2 percent to $24.8 billion.

Exports to China rose 18.2 percent to $8.4 billion while imports from China fell 20.2 percent to $33.2 billion.

James Knightley, chief international economist at ING noted that the United State’s trade position had deteriorated sharply through the latter part of 2018, which we attribute largely to US firms ramping up imports from China ahead of anticipated tariff increases on January 1.

“The tariffs were postponed in mid-December by President Trump, but businesses could not have known that would happen and given the time it takes to ship products across the Pacific, they had unsurprisingly ordered fewer imports for January and February,” Knightley said.

“We suspect there will be a renewed deterioration in March, but with inventory levels looking reasonably high we expect it to be modest,” he continued. “In any case, this better than expected trade situation creates a really good platform for 1Q GDP growth. The Atlanta Fed GDP Now model based on data released up until last week points to 2.3 percent GDP growth for 1Q19, but today’s trade figures means 2.5 percent is looking achievable.”

President Donald Trump has imposed tariffs on $250 billion in Chinese imports in a fight over U.S. allegations that China steals U.S. technology and forces foreign firms to turn over trade secrets in exchange for access to the Chinese market.

China has retaliated by targeting $110 billion worth of American products.

In addition to targeting Chinese products, Trump has slapped tariffs on imported steel, aluminum, dishwashers and solar panels. And he is threatening to tax imported cars as well.

The two nations have tentatively scheduled a fresh round of face-to-face meetings as they seek to close out a trade deal, with negotiators are reportedly aiming for a signing ceremony in late May or early June.

Under a draft schedule, U.S. trade representative Robert Lighthizer is tentatively set to travel to Beijing the week of April 29, with Chinese envoy Liu He coming to Washington the week of May 6. The Wall Street Journal reported Wednesday.

ING’s Knightley wasn’t the only economist to respond positively to the latest trade deficit numbers.

JPMorgan Chase & Co. economists raised their GDP forecast following the report to about a 2.5 percent annualized growth pace in the first quarter from 2 percent.

Goldman Sachs Group economists, meanwhile, lifted their estimate to 2.1 percent from 1.7 percent.

The Commerce Department will release first-quarter GDP figures on April 26. Growth was 2.2 percent in the final three months of 2018.