The U.S. trade deficit narrowed slightly in December as exports outpaced imports, a welcome development for President Donald Trump as he sets out to shrink the gaps with America’s trading partners.
The trade deficit for December was $44.3 billion. U.S. goods and services sold abroad in December surpassed imports by a seasonally adjusted $1.5 billion compared to November, reversing a three-month period where the trade deficit grew, according to Tuesday’s report from the Department of Commerce.
Despite December, the gap between imports and exports grew to $502.3 billion in 2016 – up nearly $2 billion from the prior year – making 2016 the eighth-highest deficit year in American history.
The $5 billion boost in exports over the previous month suggests that the strengthening economies of some foreign trading partners are starting to make an impact on global demand for U.S.-produced goods.
“We are beginning to see an inflection point in the trade data because of stronger growth that is occurring in Europe and in Japan, as well as some emerging countries,” said Bernard Baumohl, Chief Global Economist at The Economic Outlook Group. “That’s going to result in greater demand for U.S. goods.”
Capital goods received a much-needed boost in December from exports of civilian aircraft, boasting sales $1 billion higher than in November.
“The data is a reflection of an improving growth backdrop,” said Joseph Lupton, Senior Global Economist at JPMorgan Chase. “The global economy, including the U.S. economy, should do a fair bit better as we go through the course of this year.”
As increased demand overseas coincided with the election of President Trump, who has promised to cut regulations and taxes, business owners and traders alike made no secret of their optimism.
The Dow Jones index of 30 large public stocks has grown over 1,000 points since Dec. 1, recently blowing past the 20,000-point milestone.
Small businesses anticipating a reprieve from the increasing burden of regulations share investors’ confidence: a survey of small business owners in December revealed that confidence in an improving economy ballooned by a seasonally adjusted 38 percent compared to the previous month.
“Firms are optimistic, investors are optimistic that things are going to change – the corporate tax rate is going to be cut, the regulations are gonna be swept aside, that Dodd-Frank isn’t going to be so strictly enforced,” said Robert Brusca, Chief Economist at Fact and Opinion Economics.
Yet for all the enthusiasm of the private sector, a lack of clarity from the president about the policies he will implement leaves room for a high degree of uncertainty.
“We have no idea what he’s really going to do, but there’s all of this optimism that he’s going to make changes,” Brusca said.
The dollar’s recent strength could reverse December’s progress by making imports more attractive and exports less competitive. But the president told the Wall Street Journal in January that the dollar is already “too strong,” which sent the U.S. currency tumbling against the Chinese yuan in a matter of hours.
“There is some kind of an inconsistent approach in his logic and his thinking,” Baumohl said of Trump. “Namely, that he wants to see foreigners continue to invest in the United States, build factories, employ workers – but that means that that’s going to increase demand for dollars.”
The president’s statements in support of tariffs – taxes on imported goods both from foreign nations and corporations – have garnered criticism from economists as being counter-productive to economic gain.
“There’s no doubt that tariffs would weigh heavily on trade and that would disrupt supply chains,” Lupton said. “It would be a negative, certainly a near-term negative for growth.”
During the presidential campaign, Trump floated the possibility of starting trade wars with China and Mexico through heavy tariffs, which Baumohl said could lead to a backslide in the American economy.
“There is always a risk that if Trump decides to put up barriers like tariffs that we could see countries like Mexico and China retaliate against the United States,” Baumohl said. “And if that’s the case, let’s face it, the U.S. is now growing at around two percent. So if you’re starting a trade war, that doesn’t give you much of a buffer to protect the U.S. economy from sliding into a recession.”
Others, like Brusca, find Trump’s tactics more defensible.
“We are in a really dysfunctional state right now, and so Trump is trying to compensate for the fact that the financial side of free trade hasn’t been in place,” Brusca said.
“Other countries in fact have been cheating, they’ve taken advantage of us. So he’s gonna use the tariff side to whack them over the head.”