The U.S. trade deficit in January widened to its highest level since March 2012 – unwelcome news for the Trump administration, which recently decried deficits as potential threats to national security.
January’s trade deficit was 9.6 percent higher than in December, as the gap between imports and exports grew to a seasonally-adjusted $48.5 billion, according to Tuesday’s report from the Department of Commerce.
Imports and exports of goods and services both increased to their highest levels since December 2014, with imports soaring to $240.6 billion and exports reaching $192.1 billion.
“The last four months we’ve seen pretty strong gains in imports,” said Michael Englund, Chief Economist at Action Economics. “That rebound, to a large degree, probably reflects a recovering economy.”
Imports of consumer goods grew by 4.9 percent in January, boosted by more than $1 billion from cell phones and other household goods.
“I mean, what planet are you on? Of course cell phones have been increasing!” said Sam Schwartz, owner of Sterling Electronics in Crown Heights. Cell phone sales have increased at a regular pace in his store, Sterling said.
The increase in the deficit would have been much less dramatic if not for a 29 percent month-to-month decline in exports of “other goods,” which include military equipment and aircraft. Exports of industrial supplies and materials, such as petroleum, chemicals, glass and metal, increased $2.1 billion in January, for example.
“Overall, the export story was pretty good,” said Omair Sharif, Senior U.S. Economist at Société Générale. “Unfortunately it was all wiped out by this big decline from other goods.”
A Bloomberg survey on Monday comprising 64 estimates from economists accurately forecasted a median deficit of $48.5 billion.
The deficit numbers arrived as the Trump administration ramped up its rhetoric, casting trade deficits as a major problem for the country.
President Trump consistently criticized the U.S. trade deficit throughout the 2016 campaign as a representation of “unfair” trade deals with other countries. In a speech to a conference of business economists, Peter Navarro, director of the newly formed National Trade Council, made deficit reduction a top priority.
“Bilateral trade deficits do indeed matter, and it is a critical economic goal and in the interest of national security to reduce these deficits in a way that expands overall trade,” Navarro said on Monday.
The director spoke of the severe consequences of fomenting large deficits with rival nations, suggesting that such a policy in the long term could put the United States in a position to lose a “broader cold war.”
But many economists believe the administration’s proposals for tax cuts while spending heavily on defense and infrastructure will increase the deficit.
“If he shoots the lights out with spectacular success on virtually every front that he’s talked about,” Englund said, “surely the trade deficit will widen. So, a widening trade deficit is probably the single greatest gauge of success.”
In February, the administration considered recalculating the trade deficit to exclude “re-exports,” or goods imported into the United States and then sold abroad. The effect of the change would subtract roughly $250 billion from America’s annual export number, thereby increasing the deficit by that amount.
It would disproportionately affect the trade deficit with Mexico, where the United States sends the most re-exported goods – more than $50 billion in 2016.
While the rising dollar may also play a role in the imports data, there’s little evidence to suggest that weaker export growth is tied to the shifting exchange rates.
“I’m not sure that it’s playing much of a role in restraining exports right now,” Sharif said. “It was the military equipment proportion that really dragged us down.”
The dollar has gained considerable strength over the last year, moving from a low point of $1.15 per Euro in May 2016 to near-even value in December and January. Yet the most recent national survey from the nonprofit Institute for Supply Management showed a 12-month growth trend in new export orders.