Trade Deficit Forecast

Economic Forecasts

U.S. Imports Rise Slightly as Americans Buy More Goods from Abroad

Kiplinger's latest forecast on the direction of the trade deficit.

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GDP 2019 growth will be 2.3%; 1.8% in 2020 More »
Jobs Job gains of about 170,000 per month in ’19 More »
Interest rates 10-year T-notes staying around 2% until trade war ends More »
Inflation 2.1% in ’19, up from 1.9% in ’18 More »
Business spending Up just 2% in ’19 amid uncertainty of trade war More »
Energy Crude trading from $50 to $55 per barrel in December More »
Housing 5.35 million existing-home sales, down 1.1% in ’19 More »
Retail sales Growing 4.3% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’19 More »

The U.S. trade deficit widened slightly in August as imports increased more than exports. Consumer-goods exports were down 4% from a year earlier and have been flat since early 2018. In contrast, consumer-goods imports hit a record high in August.

A strengthening dollar will likely weigh down exports in the fourth quarter. The buck has appreciated as the U.S. economy outperforms much of the rest of the world and comparatively high interest rates attract investment into the country. A strong dollar is a headwind for exports because it increases the cost of domestically produced goods for buyers abroad. At the same time, it benefits imports by lowering the relative cost of imported goods. Stronger demand for imports resulted in the trade deficit in goods widening to $74.4 billion in August, up 1% from the prior month.

The U.S. trade gap with China shrank slightly in August as the trade imbalance between the two nations continued to narrow. The trade war with China has caused exports to the United States to drop significantly in 2019; U.S. imports from China fell 12.5% in the first eight months of the year. The United States and China are set to restart trade negotiations this week. Since the end of August, the trade war has escalated substantially. Additional tariffs went into effect on September 1, with others set to rise or take effect on October 15 and December 15.

See Also: 10 Companies Already Hurt by President Trump's Tariffs

There are also strains with the European Union, which is deeply resistant to opening its agricultural markets to U.S. farm goods. That is complicating a bid to strike a free-trade deal between Brussels and Washington. Another obstacle is the World Trade Organization’s recent ruling in the Airbus case, which has allowed the United States to impose additional tariffs worth up to $7.5 billion on EU imports. The Trump administration is holding out a threat of tariffs on imports of automobiles from Germany and other European countries if the talks don’t succeed.

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The trade war is also contributing to slower growth among the main U.S. trading partners. Demand from major partners has declined because Europe is verging on recession, China’s economy has slowed, and the U.K. is still grappling with the volatility and uncertainty surrounding Brexit.

Despite the White House’s focus on shrinking the trade deficit, expect it to widen by 7% to 8% for 2019, to about $670 billion. It’s up by 8% already in the first half of this year, compared with the first six months of 2018. The U.S. economy remains relatively strong, particularly compared with growth among its main trade partners. As a result, U.S.A. will keep drawing in imports from the rest of the world.

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Sources: Department of Commerce, Trade Data