US trade deficit widens in October from a nearly three year low

Commerce Department said deficit rose to $42.6 billion in October

December 6, 2016
The Canadian Press
The Canadian Press

WASHINGTON—The U.S. trade deficit climbed in October from its lowest monthly level in nearly three years. Imports of consumer goods such as medicine, cellphones and clothing increased, while exports of soybeans, gold and artwork tumble—which fueled the monthly widening of the trade gap.

The Commerce Department said the deficit rose to $42.6 billion in October, up 17.8 per cent from September. The $36.2 billion trade deficit in September was the lowest since December 2013.

Reducing the trade deficit has become a primary focus of President-elect Donald Trump. Trump cites the trade imbalance as evidence that the United States has signed misguided trade agreements that have hurt U.S. economic growth and cost jobs.

In the wake of an agreement last week to keep 800 jobs at the Carrier furnace factory in Indianapolis from going to Mexico, Trump has promised to lower corporate tax rates to preserve factory jobs inside the United States, while threatening harsh penalties for companies that produce goods overseas to save on labour costs. On Twitter, Trump warned that he will impose a 35 per cent tariff on the goods imported by companies that outsource production.

But such moves on trade might do little to boost manufacturing employment.

Greg Hayes, the chief executive of Carrier’s parent company United Technologies, said on CNBC Monday that the $16 million investment in the Indianapolis plant as part of the decision to limit outsourcing would ultimately increase automation and “what that ultimately means is there will be fewer jobs.”

So far this year, the trade deficit is running 2.1 per cent below its 2015 levels. The United States has been exporting more food but fewer industrial supplies, oilfield equipment, autos and consumer goods. But the country has also cut back on imports of steel, oil, aircraft, computer accessories and televisions, among other goods, leading to a narrowing of the overall trade deficit.

A larger trade deficit acts as a drag on growth because it means America is buying more from foreign countries than it is selling. But the pace of exports picked up during the July-September quarter, contributing a solid 1.2 percentage points to annualized growth of 3.2 per cent during the quarter.

The goods trade deficit with China contracted to $31.1 billion in October and is running 6.2 per cent below last year’s level, although it remains the leading contributor to America’s trade gap.

The deficit with the European Union rose 29.2 per cent to $13.1 billion. The imbalance with Mexico climbed 18.1 per cent to $6.2 billion.