Trade gap widens

March 7, 2024

The US nominal trade gap widened to $67.4 billion in January, more than expected after the deficit was revised larger in December. That is a 5.1% increase in January as imports rose faster than exports. The deficit rose by a similar amount in real terms, translating into a drag for GDP. The deficit decreased 4.1% year-over-year as imports decreased by more than exports, but that trend has now reversed.

Imports rose by 1.1%, or $3.1 billion, largely on capital goods and automotives. Capital goods rose by $3.1 billion on high tech equipment such as computers, semiconductors and telecom equipment. Aircraft and drilling equipment posted the largest decreases in that category. Automotives increased by $2.0 billion, equally split between passenger cars and trucks and buses. Automotive retailers were still stocking up in January; inventories rose 0.8%. Imports of services rose as increases in travel and financial services offset a small decrease in transport services.

The weak spots in imports were crude oil, which decreased $1.9 billion and dragged down the industrial supply category, and consumer goods such as cell phones and household items, which fell $1.1 billion. Non-automotive retailers began to stock up at the end of the year, but it is still slow moving amidst higher interest rates.

Exports were essentially flat in January, increasing by just $0.2 billion. Strong exports in automotives, consumer goods and capital goods were offset by plunging energy goods. There were widespread increases in automotives and automotive parts, as well as aircraft, telecom equipment, industrial machinery and medical equipment. Exports of services were unchanged. Crude oil, fuel oil and coal all led the weakness in exports as bad weather hit drilling in January.

The goods deficit increased with countries such as Canada, Japan, South Korea, Taiwan and India. These countries have been some of the beneficiaries of the reorientation of supply chains toward closer allies. The deficit with Mexico narrowed slightly though the trend has been a widening deficit. The deficit with China increased slightly but not enough to offset the sharp declines in total trade and the deficit beginning in 2022.