US trade gap widened at end of 2023

February 7, 2024

The U.S. international trade deficit widened to $62.2 billion, in line with expectations. The deficit expanded in December; however, when controlling for price effects, the deficit narrowed by 1.4%.

Export prices fell sharply in December while import prices were flat. Export prices falling more than import prices has been the trend for the entire fourth quarter and contributed to GDP growth in spite of a wider nominal trade deficit.

Both exports and imports increased, with exports increasing 1.5% and imports increasing 1.3%. The goods deficit was the driver of the increase; the goods deficit widened while the services surplus increased. The trade deficit fell 18.7% in 2023, a strong contributor to growth during an already strong year.

Imports increased by $3.8 billion in December across a variety of goods and services. Consumer goods bounced back from a weak quarter by $3.3 billion as imports of pharmaceuticals products and consumer electronics and cell phones jumped. There were very few areas of weakness in consumer products. Industrial supplies were also strong; a drop in crude oil was more than offset by imports of refined fuels and chemicals. Capital goods and automotive imports fell; earlier stocking up of trucks and buses fell off in December. Imports of services increased by $0.5 billion; all of that increase was in transport services.

The advance economic indicators showed that both wholesalers and retailers stocked up in December, by 0.4% and 0.8%, respectively. (Notably, December marked the first time that wholesalers had stocked up on inventories in a year. Inventories were dominated by motor vehicles and parts, consumer retailers and durable goods.

Exports increased by $3.1 billion, dominated by industrial supplies. Nonmonetary gold (gold purchased that is not held as a reserve asset by a monetary authority) and petroleum-related products were the strongest. Consumer goods and foods were also strong. Most of the increase in consumer goods occurred in pharmaceuticals and gem (not industrial) diamonds. Automotive exports were weak as manufacturers were still ramping up from the UAW strike. Capital goods were soft across the board, with particular weakness in aircraft exports. Exports of services were moderately strong; there were small increases in travel, transport and financial services.

While the goods deficit was wider in December, the details by country are mixed. The deficits with Canada and Japan decreased while deficits with the EU increased. We are seeing the impacts of near-shoring and friend-shoring in the full-year statistics for 2023. The deficit with China saw by far the largest decline at -$102.9 billion during the year, accounting for over a fourth of the total deficit. Most of that was on the imports side with imports falling -$109.1 billion. Deficits with Mexico continued to rise as both imports and exports increased.