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The trade deficit narrowed in October from a two-year high. The U.S. trade deficit in goods and services fell to a seasonally adjusted $73.8 billion, from a revised $83.8 billion in September, an 11.9% monthly decline. The trade deficit is a measure of the difference between what the United States buys from foreign nations and what it sells overseas. Year to date, the goods and services deficit has grown 12.3% when compared with the same period in 2023.
The policies implemented by the incoming Trump administration will have a significant impact on the deficit’s path, but net exports are likely to remain a headwind to GDP growth. The dollar’s strength will likely support import growth, while softening economic activity in other advanced economies will weigh on export demand, since U.S. goods will become more expensive in other currencies. Early next year, there’s a risk that the trade deficit will widen if U.S. companies accelerate imports to avoid tariffs that President-elect Trump has vowed to impose.
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Look for exports to weaken a bit over the next few months. Total exports fell 1.6% from the previous month. The decline was broad-based across major goods categories, led by declines in capital goods, automotive products and industrial supplies. Travel exports — or spending by visitors to the United States — rose 1.6% to a record $18.4 billion. Exports have contended this year with a weaker global backdrop and a stronger dollar, which makes U.S. goods relatively more expensive abroad. With China’s economy yet to meaningfully stabilize, growth across the eurozone showing signs of fragility, and the Federal Reserve moving slower than some other central banks to lower interest rates, export growth is likely to remain weak over the next few months.
Solid domestic demand is contributing to the relative strength in imports into the United States. However, total imports fell 4% in October from the previous month; every major category saw a decline. Most of the weakness was concentrated in capital goods, namely computers and semiconductors. Pharmaceutical preparations were responsible for just over half of the decline in consumer goods imports. Travel imports — a measure of spending by Americans traveling abroad — climbed 5.1%. Despite the large decline in total imports in October, they remain elevated this year, thanks largely to the strong dollar.
Source: Department of Commerce, Trade Data
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