WASHINGTON: The US goods trade deficit with China, a focus of the White House’s “America First” agenda, shrank to its smallest in five years in March, which could embolden President Donald Trump as he escalates his trade war on Beijing.
The report from the Commerce Department on Thursday came as the United States and China began two days of make-or-break talks to salvage a faltering trade deal.
Trump said on Thursday he would start paperwork to launch tariffs on a new $325 billion category of Chinese imports previously untouched by the trade feud. This is in addition to an expected increase of duties on $200 billion worth of Chinese goods to 25 per cent from 10 per cent on Friday. China has promised to retaliate if the tariffs are imposed.
“This (narrowing deficit) could allow President Trump to assert that the tariffs in place are having the intended effect as negotiations between the US and China intensify today in Washington,” said Scott Anderson, chief economist at Bank of the West in San Francisco.
The politically sensitive goods trade deficit with China decreased 16.2 per cent to a seasonally unadjusted $20.7 billion, the lowest level since March 2014, as exports, including soybeans, surged 23.6 per cent. Imports from the world’s No 2 economy fell 6.1 per cent.
Washington last year imposed tariffs on $250 billion worth of goods imported from China, with Beijing hitting back with duties on $110 billion worth of American products. China initially targeted US soybean exports, but later committed to buy more of the crop as trade negotiations proceeded.
China is the world’s biggest buyer of soybeans. Economists said the latest flare-up of trade tensions could undercut soybean exports, which rose by $0.5 billion in March.
“In the near-term, trade frictions might arrest the recent ramp-up of soybean exports from the US to China,” said Andrew Hollenhorst, an economist at Citigroup in New York. “This would be in addition to some expected softer demand from China as African swine fever has reduced feed requirements.”
The overall trade deficit increased 1.5 per cent to $50 billion in March. Economists polled by Reuters had forecast the trade shortfall widening to $50.2 billion that month. The goods trade deficit increased 0.7 per cent to $72.4 billion in March.
The trade data have been volatile in recent months, with big swings between exports and imports because of Washington’s conflicts with trading partners, including the European Union, Mexico and Canada. The goods trade deficit with Mexico hit a record high of $9.5 billion in March.
When adjusted for inflation, the overall goods trade deficit increased $0.5 billion to $82.1 billion in March.
The dollar was trading lower against a basket of currencies as investors cautiously watched the trade talks in Washington, while US Treasury prices rose. Stocks on Wall Street fell.
The government reported last month that trade contributed 1.03 percentage points to the economy’s 3.2 per cent annualized growth pace in the first-quarter. While another report on Thursday from the Commerce Department showed wholesale inventories were weaker than initially thought in March, data for February was revised higher.
As a result, economists expect the advance GDP growth estimate could be trimmed to about a 3.1 per cent pace when the government publishes its revision later this month. They had previously expected first-quarter GDP growth would be lowered to around a 2.9 per cent pace. — Reuters
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