Kiplinger Trade Outlook: Trade Gap Narrows to Lowest Level Since 2020
A surge in gold exports and shifting trade alliances drive a sharp contraction in the U.S. trade deficit.
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The U.S. trade deficit narrowed sharply in September to $52.8 billion, down from a revised $59.2 billion in August. This marks the second consecutive month of contraction and brings the deficit to its lowest level since mid-2020. Unlike the previous month, when the gap closed due to plunging imports, September's improvement was driven by a robust 3% increase in exports that significantly outpaced a modest 0.6% rise in imports. The goods deficit narrowed to $79.0 billion in September, while the services surplus remained relatively stable at $26.2 billion. However, the headline narrowing in September may overstate the health of the U.S. manufacturing sector.
The Gold Distortion
A significant portion of September's export growth was driven by a $6.1 billion spike in exports of nonmonetary gold. These shipments, often reflecting safe-haven demand ahead of a potential government shutdown, are typically excluded from GDP calculations because they are treated as financial asset transfers rather than final goods production. Excluding gold, goods exports rose by a more modest 1.6% in September.
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- Capital goods: Exports of U.S.-made capital goods fell by $3.3 billion in September, highlighting ongoing pressure on the manufacturing sector.
- Services: Exports of services continued to show strength, while the services surplus saw a slight monthly dip of approximately $0.6 billion.
Import Trends and Inventory Management
Total imports rose slightly in September, led by a $10.3 billion increase in consumer goods. Analysts suggest this reflects the beginning of the peak holiday shipping season, though volumes remain down 7% year-over-year.
Retailers appear to be managing inventories cautiously to avoid being caught with excess merchandise, a task made more urgent by the high cost of import duties. Conversely, capital goods imports — such as semiconductors and chip-making equipment — slowed slightly in September, though they remain buoyed by long lead-time orders placed between 2022 and 2024.
A Shifting Trade Landscape
The U.S. trade balance is being reshaped by volatile trade policies and shifting global alliances. In September, the share of U.S. imports coming from the European Union jumped 4%, while the share from Asian trading partners declined. After earlier declines, imports from China have begun to rebound slightly following recent tariff deals that lowered rates on certain Chinese products.
Looking ahead, net trade is expected to be a significant contributor to Q3 GDP growth, with estimates suggesting it could add up to 1.6% to the top-line figure. However, early data from major trading partners suggests a potential widening of the trade deficit in October as import volumes begin to rise again.
Source: Bureau of Economic Analysis
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