Daily Management Review

Trump tariffs affect US trade deficit


Last year, the deficit of US foreign trade in goods and services decreased for the first time in the last six years. In 2019, it amounted to $ 616.8 billion, which is $ 10 billion lower than the previous year. Exports for the year decreased by 0.1%, while imports - by 0.4%. The difference between imports and exports of goods decreased more significantly - by $ 20 billion, to $ 866 billion, including imports from China decreased by 17.6% over the year; increased deliveries from Canada and Mexico (by 42% and 26% respectively) replaced its only partly.

Recall that during the course of the trade war, the average US tariff for Chinese products rose from 3.1% to 21%, while Chinese tariffs for American products - from 8% to 21.1%. However, in December, despite the effect of tariffs on Chinese products (an agreement on their partial reduction was signed only in January), the US trade deficit widened to $ 48.9 billion against $ 43.7 billion in November. Imports grew by 2.7% month-to-month, to $ 258.5 billion, while exports - by 0.8%, to $ 209.6 billion. In the fourth quarter, however, net exports were the main contributor to the increase in US GDP (1.5 percentage points from 2.1). The export of goods for the quarter increased by 1.4%, while imports dipped by 8.7% against the backdrop of the action of duties.

In the first quarter of this year, contribution of net exports to GDP growth is likely to be neutral, according to Capital Economics. However, to a large extent this will depend on the influence of the spread of coronavirus in China. If the production shutdown is long, then by March this will lead to a significant reduction in US imports from the country and a reduction in the trade deficit from China.

Due to the epidemic, the Chinese economy is expected to slow down in the first quarter, which will negatively impact other countries. The center’s experts do not exclude the possibility that in the first quarter of 2020, China’s growth will slow to 3% against the expected 5.7%. In 2003, against the background of the spread of SARS, China's GDP growth for the quarter, in which the incidence peak was recorded, slowed down from 8% to 5%, but now the Chinese economy is much more integrated into the global economy, according to Capital Economics. In turn, the impact on the US economy is unlikely to exceed the losses associated with the reduction in orders from Boeing (which cost about 0.5% of quarterly growth around the US GDP).

source: capitaleconomics.com