- The trade deficit narrowed in September from $55 billion to $52.5 billion, broadly in line with consensus expectations ($52.4 billion).
- On the exports side, goods exports fell by 1.3% on a month-over-month basis and was one and a half percentage points lower than the reading in August. In real terms, the drop was even more stark, as export growth fell from +1.1% to -1% in September. By goods category, the decline was driven by a drop in foods, feeds and beverages exports.
- Goods imports also contracted, decreasing by 2.1% m/m in September. Price movements did little to change the dynamic, as real imports contracted by 2%, down from a near 1% rise in August. By goods category, the drop was mainly due to lower imports of consumer goods, which fell by nearly 5% in September. This decline could reflect the impact of tariffs the U.S. imposed on a large swathe of consumer goods imported from China which came into effect on September 1st.
- Exports of services was down a touch, decreasing by 1% m/m, while services imports rose by the same magnitude in September.
Key Implications
- Today’s trade release exhibited an unusual amount of volatility as U.S. producers and consumers adjusted their preferences in response to the tit-for-tat tariffs imposed by the U.S. and China. U.S. exports from China were down 10% on a month-on-month basis, and imports were down 5% – the highest among major trading partners. We can expect this sort of volatility in the trade data to continue, unless there is a partial resolution to the trade conflict.
- Trade negotiations may already be moving towards this outcome. Over the past few weeks, U.S. and China edged closer to signing a phase one trade deal sometime in November. As part of the deal, the U.S. is expected to axe the tariffs slated for December 15th on around $160 billion worth of Chinese goods. However, over the last few days, China has reportedly asked for the tariffs imposed on September 1st on about $125 billion of Chinese goods to also be removed. It is unclear if this will derail this attempt at a deal as the U.S. wants to maintain leverage for future talks. Nevertheless, there seems to be a bit more optimism in the air.
