February’s unusually low trade deficit will not be seen in March.
The consensus forecast for the March trade deficit is $42.0 billion, up 11% from February’s revised deficit of $37.8 billion.
The resolution of the West Coast port strike and a strong dollar will account for much of the trade imbalance.
The West Coast Port Employers and Union reached a five-year agreement in February after a nine-month standoff resulted in billion-dollar losses for exporters and importers. Delayed goods cost retailers millions of dollars.
Roughly 50 percent of all clothing is imported into the U.S. through Los Angeles and Long Beach. The ports are the entry for the majority of Asian imports, which includes soybeans and televisions.
Marcia Garcia, a clothing store owner in the Bronx, says that business has been slow the last two months due to delayed product shipments. Most of the clothing she purchases for her store comes through the West Coast ports.
“I order straight from the China warehouses,” she said. “Everything was held up in California because of the labor arguments. I’ll be playing catch up for the next couple of weeks.”
With business at the ports returning to normal, consumer spending should increase the number of imports to widen the deficit.
“If you’re looking at real terms, consumer spending has accelerated by 4.4% in Q4, and probably another 2 percent this quarter,” said Mike Englund, economist at Action Economics.
Since the end of winter’s harsh effects on sales, consumer spending is expected to return to normal by June, as seen by April’s strong auto sales. Since the end of the port strikes, U.S. factories have experienced an 2.1 percent increase of orders. U.S. durable goods exports will increase for March, particularly in the auto sector. Automakers can breathe a sigh of relief after posting low auto sales in February.
“February production has been quite low, we were producing at a rate of about 11.1 million cars,” said Paul Ashworth, a senior economist at Capital Markets. “We’re slowly starting to see a pickup in March.”
Exports also decline in March because of the strong dollar. Since last summer the dollar has appreciated 15%, making U.S. exports less competitive abroad and imports cheaper domestically. As it continues its gain against the Euro and the Pound, American exports are becoming expensive in EU countries like France, which imports California wines. International trading partners are less likely to import U.S.-produced goods now that they are more costly.
“The strong dollar is a tail wind for importers, making imports relatively cheaper,” said Stephen Stanley, an economist at Amherst Pierpont securities. “Both will widen deficit, all else remaining equal.”
Slow growth and manufacturing cutbacks in China have kept the dollar afloat, making American imports more expensive. China is considering devaluing the Yuan in order to keep exports cheap and entice U.S. consumers to continue importing Chinese goods. However until the Chinese officially depreciate the yuan, the trade balance between the U.S. and China will continue to widen as the country exports less to Asia and imports more. Should the U.S. Treasury choose to buy Chinese debt in response to the yuan’s devaluation, it could lower the deficit further and increase GDP by $420 billion annually.
If domestic companies put more money towards research and development instead of investing in overseas manufacturing, it could increase GDP by 1%. Should the U.S. trade deficit increase in March, the larger trade deficit will shift investment in manufacturing and service activities in the global market to the domestic market.