The U.S. international trade deficit fell by more than expected in January, due to the first phase of the trade deal signed by the President and China. 

The trade deficit dropped 4.6% to $65.5 billion in January compared with $68.7 billion in December, according to the advanced U.S. international trade in goods report released Friday by the Department of Commerce. 

Imports of goods for January were $201.2 billion, $4.6 billion less than December 2019. Export of goods in January fell to $135 billion, $1.4 billion less than December.

“People imported a lot of goods for their inventory in the last year and a half,” David Berson, Nationwide Insurance Senior VP and Economist said. “They were trying to get goods through the border before tariffs were imposed.” 

The U.S. signed the first phase of trade agreements with China, in January just weeks prior to the coronavirus outbreak. Since then production of all exported goods halted and the country has already begun to feel its effects. 

At the end of 2019, there was an increase of imports due to the timing of Chinese Lunar New Year, during which the country goes on an extended holiday. 

The president signed “phase one” of a trade agreement with China, in January, following an 18 month trade war that would have caused a major shake-up to both the U.S. and China’s economies. The agreement demands of China to invest more in the purchase of American manufacturing, energy and agricultural goods and asks the U.S. to reduce tariffs on $120 billion in Chinese products. 

“With the advent of the phase one trade deal that [to import a lot of goods it was no longer necessary] until we’ve seen a big drop of an important inventory.” said Michael Englund, chief economist at Action Economics.  

While the deficit declined, Americans are likely to experience a shortage of consumer goods, in the coming months due to the coronavirus. The virus which originated in Wuhan, China has spread to several parts of the world. After the prolonged break of the Lunar New Year, China’s exports were expected to resume but they have remained closed due to the spreading of the virus. 

“The biggest impact is going to be on consumer goods, cell phones, toys, clothing,” Englund said. “This where we might find some shortages of some items as we as department stores basically and be all retailers sell out of inventory.” 

The fall of imports is expected to be reflected in the data of February’s U.S. International Trade report. The report details the data of imports and exports of goods and services between the U.S and other countries. 

The Wall Street Journal reported analysts at Goldman Sachs Group Inc. does not expect U.S. companies to post any earnings growth in 2020. 

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