- For the second consecutive month the U.S. trade deficit narrowed, dropping to $47.2bn in October from a revised $51.1bn in September (previously $52.5bn). The improvement was a bit larger than consensus forecasts.
- Goods exports declined 0.6% in the month, building on September’s 1.4% decline. All goods categories except industrial supplies registered modest declines. Removing the impact of price changes, the story was similar; export volumes dropped 0.5%, slightly less than September’s 1.2% drop.
- Imports of goods declined as well, falling 2.1%, the same magnitude as September. Modest declines were observed in all categories except capital goods. That said, consumer goods fell 4.4% again in October, the second month for which new tariffs were imposed on largely consumer-centric goods imported from China. On a price-adjusted volumes basis, goods imports fell 2% (September -1.9%).
- Services exports rose 0.5% in October, while services imports rose 0.2%.
Key Implications
- The improvement in October’s trade balance was not due to an improvement in exports, but instead reflected imports falling even more than exports. The drop in consumer goods imports likely reflects September’s tariff hike that targeted consumer goods from China. Consequently, soybean exports have taken a hit in the last two months, grabbing the attention of the U.S. administration. Aside from tariff distortion, the GM strike also is injecting volatility in the headline trade figures, weighing on automotive exports and imports over the September-October strike period.
- Trade data will continue to remain volatile in the months ahead as the U.S. threatens new tariffs on its trading partners. A “Phase 1” deal with China looks further away now than a week ago thanks to comments from the U.S. administration suggesting that tariffs on around $160bn in imported Chinese goods slated to take effect mid-month will go ahead. Moreover, the restoration of steel and aluminum tariffs on Brazil and Argentina, and the threat to levy tariffs on $2.4bn in French goods are actions that suggest that the elevated level of trade policy uncertainty will continue to linger in the months ahead.
