A widening U.S. trade deficit in January points to economic recovery, while weak export sales to Europe indicate a need for emerging export markets.
The U.S. trade deficit for January rose to $52.6 billion from $50.4 billion signaling stronger economic growth, say economists. This month’s gap is due mainly to a $4.7 billion jump in imports of goods and petroleum, which outpaced a more modest increase in U.S. exports of $2.6 billion. And though the numbers are on track to meet President Obama’s goal of doubling exports by 2015, the fall-off in Europe over the past year suggests the U.S. should target new export markets in emerging economies.
The U.S. deficit is now at its widest point since October 2008, having been trending upward ever since the end of 2009. Many economists agree this is a good sign.
“Typically the deficit grows in times of expansion,” says Andrew Bernard, director of the Center for International Business at the Tuck School of Business at Dartmouth. “When we’re coming out of recession, it tends to increase. This is one of those times.”
The trade gap caused a slight downward revision of Q4 GDP to 2.8% from 3%. And while analysts are taking note, few are worried. “It doesn’t drama change our view of how quickly the U.S. economy is rebounding,” says Jeremy Lawson, an economist at BNP Paribas.
A greater volume of imported consumer goods, food and foreign-made automobiles accounted for much of the trade gap this month. A slight uptick in petroleum prices influenced the numbers somewhat, though the volume imported remained steady.
With U.S. exports to recession-bound Europe down $1.9 billion from last year, emerging markets could be the key to narrowing the trade gap, say economists.
Although Canada and Mexico remain the country’s largest export markets, developing economies like India, Brazil and Indonesia are showing an appetite for U.S. goods and services.
“In the longer term, you’re looking at a lot of trade expectations for developing nations – India, the Asian countries, Latin America and Eastern Europe to a little extent,” says Scott Brown, chief economist of Raymond James Financial. “Those economies are all going to be developing over the next 10 or 20 years.”
The degree to which U.S. companies can reach these markets today may help it fend off competitors later.
Alexander Gordin, managing director of Broad Street Capital Group, warns of competition from Europe. “Europeans are much more adept in their exports. They are formidable opponents in markets that are growing. They know how to play the export market very well, and this will be the driver that fuels their recovery.”
With such a large domestic market, most U.S. companies are not accustomed to doing business overseas. Only 1% of U.S. businesses export their goods or services, and most of those export to only one country.
Emilia Istrate, a senior analyst at Brookings Institution says there’s no denying the need for cultural change if exports are to expand. But it’s a steep learning curve. “Time and again, we’ve found that fear of the unknown was one major barrier for companies that were not exporting,” she says.