US trade deficit narrows as exports, imports plunge

WASHINGTON • The United States trade deficit narrowed in April as both exports and imports tumbled, highlighting the impact of President Donald Trump's tariffs even before negotiations with China unravelled and he threatened levies on Mexican goods.

The deficit in goods and services shrank to US$50.8 billion (S$69.3 billion) - nearly in line with economist estimates - from a revised US$51.9 billion the prior month, according to a Commerce Department report yesterday.

The merchandise-trade gap with China increased to US$29.4 billion, while the Mexico deficit narrowed to US$7.9 billion.

Exports fell the most in three years, partially reflecting lower demand for civilian aircraft following the worldwide grounding of Boeing Co's 737 Max model, though the decline in shipments abroad was broad-based.

A narrower deficit overall will likely add to economic growth and allow Mr Trump to claim some victory on pledges to reduce the gap, but it has come at a cost to American companies that have lost export business or are paying higher prices.

"The shifting policies are really making it difficult for businesses to try to plan ahead and try to get their supply chains in order, and it's most evident in these big fluctuations that you're seeing in imports and exports on a monthly basis," said Mr Brett Ryan, a senior US economist at Deutsche Bank.

While it might not matter to Mr Trump how a smaller deficit is achieved, everybody loses when trade is decreasing from all sides, Mr Ryan added.

Goods shipments to China fell to US$8.5 billion in April from US$10.2 billion in the previous month and are down 20 per cent in the year to date. Imports from China have also declined 13.2 per cent this year.

Meanwhile, merchandise exports to Mexico have been little changed so far this year, while imports are up 6.1 per cent. This highlights the diverging paths of US trade with Mexico and China since Mr Trump imposed the first wave of China tariffs in the middle of last year.

US imports posted the biggest drop since January on declines in inbound chemicals, semiconductors, cars and consumer goods. Merchandise demand was the lowest in more than a year.

The smaller overall trade gap suggests that net exports were on track to contribute to economic growth in the second quarter. However, if US companies again boost imports to beat tariffs, it could weigh on the pace of expansion.

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A version of this article appeared in the print edition of The Straits Times on June 07, 2019, with the headline 'US trade deficit narrows as exports, imports plunge'. Print Edition | Subscribe