US trade deficit rises by 12%

The trade deficit hits a record high as the US and China try to negotiate a trade deal.

US flag after trade deficit Source: Bloomberg

The US trade deficit rose 12.8% in December 2018 to $79. 5 billion. The data from the US Commerce Department shows that the deficit is at an all-time high.

US trade deficit: key figures

US imports $135.7 billion
US exports $215.2 billion
Factory orders +0.1%
Oil and gas orders -5%

Why did the US trade deficit rise?

The US trade deficit is rising because of a slowdown in orders for US-made goods. While factory orders grew 0.1%, it was still less the 0.5% expected by economists. Lower gas prices were ironically bad news for oil and gas orders, and they declined by 5%.

Despite US President, Donald Trump, imposing $300 billion worth of tariffs on Chinese imports, there is still a wide discrepancy between US imports and exports. US exports dropped by 2.8% to $135.7 billion. Imports increased 2.4% to $215.2 billion.

How will the US trade deficit affect the GDP?

The negative trade numbers could cause diminished Q4 2018 economic growth. Chief US economist at Pantheon Macroeconomics, Ian Shepherdson, wrote in a note to clients that the trade numbers could negatively impact the US’s gross domestic national product, (GDP).

‘These numbers are worse than we expected. The immediate consequence of these numbers is that estimates of fourth quarter GDP growth will be revised down, by about 0.4%,’ wrote Shepherdson.

Stephenson also noted that the US trade deficit has a two-fold lesson.

‘Two stories are at work in the trade numbers. First, the combination of relatively strong domestic demand, boosted by tax cuts and lower gas prices, coupled with softening global demand, is a toxic combination,’ noted Stephenson.

‘Second, the threat of increased tariffs on imports from China appears to have prompted precautionary inventory-building,’ added Stephenson.

The US trade deficit will weigh on investors’ minds when the US GDP report is released and when the US and China resume trade talks.

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