The U.S. trade deficit narrowed in January as imports declined and exports rose, partly because of a compromise by China amid trade negotiations between the two countries.
The trade deficit in goods and services shrank 14 percent in January to $51.1 billion, according to a Commerce Department report released Wednesday. The deficit fell $8.8 billion from $59.9 billion in December, the highest monthly level since October 2008. December’s high had contributed to 2018’s massive $891.3 billion trade deficit for goods, which set the record for the highest yearly total in history.
Exports were driven by food sales, with soybeans leading in the food category. Soybean sales rebounded in January, increasing $900 million from December, in part the result of a temporary agreement between President Donald Trump and China, in which the U.S. agreed to hold off on some tariffs while the Chinese bought more agricultural products.
“Farmers will be a very BIG and FAST beneficiary of our deal with China. They intend to start purchasing agricultural product immediately,” Trump tweeted on Dec. 3.
That agreement was on the minds of economists when they read Wednesday’s report.
“If you look at trade with China, both imports and exports declined, suggesting that the trade tensions that we’re having have some influence on numbers,” said Michael Moran, chief economist at Daiwa Capital Markets America Inc.
A decline of U.S. imports could signify trouble ahead for the economy, economists said.
In July, the Chinese government placed tariffs on American exports, including soybeans, in retaliation to U.S. tariffs placed on Chinese imports. Farmers have been hurt financially by the tariffs, and negotiations are ongoing to resolve the trade war.
“The behavior of imports between December and January may reflect positioning around the tariffs, as the deficit with China narrowed substantially,” Ward McCarthy, chief financial economist at Jefferies LLC, said in a note to clients.
A rise in U.S. exports seemed to indicate a subtle shift in China’s trade policy, a win for the Trump administration as well as the U.S. economy. “They had been pretty weak in the second half of 2018, mainly because of Chinese protectionist measures,” said David Sloan, senior economist at Continuum Economics, referring to exports. “And now it seems like China is softening its stance and trying to get a deal with Trump.”
Bill Shipley, 60, a soybean farmer in Iowa, hopes the countries reach a deal soon. He’s been discouraged by trade talks because he loses money every day they continue.
“Even last May they told us how great things were going, and they’re getting things straighten out,” he said. “Then within five days, everything was back to where it was.”
Last year Shipley wanted to trade in his 2002-model seed planter — “the most important piece of machinery on a farm” — so he could buy a new, smart John Deere model. It would radically improve his planting precision, but he couldn’t afford its $175,000 price tag. Now, although he welcomes Wednesday’s soybeans news, he still worries.
“We aren’t expanding, we aren’t trading any machinery,” he said. “We’re just trying to keep our ducks in a row and stay in business. That’s the name of the game right now.”
On the flip side of the deficit, the decline of imports is making waves in another way. One economist said the decline could signify trouble for the economy.
“You could argue that that’s a sign of slowing demand in the U.S.,” Moran said. But, he added, he viewed the Commerce report on a whole as favorable for the U.S. economy.
Sloan agreed that the report was good news for the economy, while noting that the decline of imports was probably not the result of less spending by consumers.
“The main area of slow down were capital goods and industrial supplies, so it may be a sign that U.S. business investment is lowering,” Sloan said.
Economists had predicted sluggish first-quarter GDP growth, but the January report should reduce pessimism lingering around the U.S. economy, Sloan said.
“It’s positive as far as it goes for the first quarter, but it’s still early days here,” he said.