Tepid global growth leads to substantial widening in US trade deficit

The U.S. international trade deficit widened substantially to $48.3billion in August, from $41.8 billion in July. The widening in the deficit was slightly worse than the 48.0bn expected by the market. With the exception of March 2015, which was distorted by port disruptions, this was the widest deficit since early 2012.

Exports of goods and services fell 2.0% M/M. Most goods export categories declined, led by other merchandise (-10.2%), industrial supplies (-5.9%), autos (-3.8%), and consumer goods ex-autos (-3.5%). In contrast, exports of capital goods ex-autos were marginally up 0.3%, while the services exports were a bright spot, rising +0.6%. Imports rose 1.2% with broad-based increases in other merchandise goods (+9.9%), non-food consumer goods ex-autos (+8.4%), and capital goods ex-autos (+2.2%). The only major category to see a decline was industrial supplies (-5.3% M/M), a category which includes oil.

The sharp declines in both exports and imports of industrial supplies reflects the falling price of oil products, with the result that the trade deficit in petroleum products continued to narrow. The rise in the trade deficit was entirely due to a substantial deterioration in the ex-petroleum deficit. After controlling for price changes, real goods exports fell 1.5% M/M, while import volumes of goods surged by 3.1%.

Across countries, the trade deficit in goods widened vis-à-vis Canada (-$0.2bn to -$2.2bn), Mexico (-$1.5bn to -$5.3bn), the EU ex-UK (-$1.4bn to -$14.2bn), the UK (-$0.7bn to -$0.3bn), China (-$4.2bn to -$32.9bn). The trade surplus rose with respect to South America (+$0.7bn to $3.3bn), OPEC countries (+$0.35bn to $1.0bn), while the deficit with Japan was largely unchanged.

Trade has been in the news with the announcement of an agreement over the Trans-Pacific Partnership deal. Full details have yet to be announced, but given the scope of the agreement, covering 40% of global GDP, with more countries set to join over time, the impact on certain sectors will likely be sizable. Still, the impact of these agreements can take years to be observed. Meanwhile, the deal still needs to be ratified by national parliaments. This adds to what is expected to be a heated fourth quarter in Congress.