- The U.S. trade deficit widened to $50 billion in March from $49.3 billion in February, broadly in line with consensus expectations.
- The trade deficit widened across most major trading partners barring China and Japan. The deficit with China has narrowed over the first quarter of 2019, reversing, at least for now, a long-running trend.
- Nominal exports advanced 1.0% m/m. Agricultural products and industrial supplies and materials fueled the increase. Soybeans exports continued to spike in March, growing by 39% m/m.
- Imports expanded by 1.1% on the back of strong gains by the same categories boosting exports. Agricultural imports picked up by 8.5%, the strongest rate since March 2014, while industrial supplies imports grew by 5.6% following six straight months of contractions.
- Nominal services exports was a tad weak in March, increasing by 0.1% m/m. On the other hand, services imports grew by 0.5% rebounding from weakness in the early parts of Q1.
- On the real side, goods exports and imports both posted solid increases of 0.7% m/m.
Key Implications
- Trade deficits are here to stay. Despite the enactment of tariffs, the trade deficit has continued to widen. This highlights two realities: First, even with tariff-induced price increases, imports continue to be driven by robust domestic demand; second, imports cannot be easily substituted by domestic production. In some cases, there may be no direct domestic substitutes and even where there are, global supply chains take a long time to reorganize.
- Even as the overall trade deficit is unlikely to improve due to tariffs, bilateral balances may. Given the special attention the trade deficit with China receives, its narrowing is, perhaps, a good omen for the next round of China-U.S. trade negotiations that is set to kick off tomorrow. Still, with China backtracking on previous commitments and the U.S. administration moving forward on its threat to up tariffs on $200 billion of Chinese imports from 10% to 25%, there is considerably more uncertainty on when a deal will be reached, reversing much of the hopeful optimism present earlier this year.
