The advanced trade report for February came out last week, and the deficit is expected to increase. Trade has been a hot topic of conversation in the wake of Donald Trump’s tariffs. Here’s what you can expect when the full report comes out later this week.
1) Both exports and imports of goods increased
The trade deficit for goods increased 0.1% to $75.4 billion from $75.3 billion. Exports of goods increased by $2.9 billion from January to 136.5 billion, while imports of goods increased by $3.0 billion from January to $211.9 billion.
The advance report also showed an increase in wholesale inventories by 1.1% from January, to $626.7 billion. Retail inventories increase 0.4% from January to $628.1 billion.
2) Lunar New Year should cause Increase in Imports
The lunar new year has an effect on the trade deficit, since companies will try to import more goods in anticipation. Ryan Sweet, director of real-time economics at Moody Analytics, said, “One big factor is lunar new year. We import more goods from China, and they follow the lunar calendar. Factories will close down for 2-3 weeks, so they ship out orders ahead to avoid shortages.”
3) Services will take a hit from Olympic Games
The U.S. consistently runs a services surplus, but the Olympic Games in PyeongChang, South Korea this winter will cause it to take a slight hit. The import of coverage of the games factor into our services balance, and the cost could run anywhere from $500 million to $800 million.
4) Tariffs will spur purchasing
In addition to companies trying to avoid the lag caused by the lunar new year, companies will also try to increase imports before Trump’s tariffs kick in. Even though many countries can qualify for exemptions, companies will do what they can to avoid the uncertainty of dealing with the exemption process.
Russell Price, Senior Economist for Ameriprise Financial, said, “Imports surged in February for goods that the tariffs will be applied to, so you have importers looking to get in under the wire.”
5) Trade deficit will be highest in nearly 10 years
The trade deficit in January was $56.6 billion, the highest it’s been since October of 2008. February should see a continuing trend of an increasing trade deficit.
For many, Trump’s tariffs on countries like China are a huge gamble. Fears of a trade war seem to be culminating, with China recently announcing tariffs on U.S. goods like pork and other related products. Things are starting to heat up, and Trump is reportedly planning to slap additional tariffs on a number of Chinese technology products. Many economists think Trump flirting with a trade war is not the way to deal with a continually increasing trade deficit.