3-7-18 11:34 AM EST | Email Article
By Ben Leubsdorf 

WASHINGTON -- The trade deficit widened further in early 2018, a deteriorating backdrop to President Donald Trump's ramped-up efforts to close the gap with the help of tariffs.

The U.S. trade gap in goods and services expanded 5.0% from the prior month to a seasonally adjusted $56.60 billion in January, the Commerce Department said Wednesday. It was the fifth straight month of a rising deficit, reaching its highest level in more than nine years.

The wider deficit "will only add fuel President Donald Trump's protectionist rhetoric in recent weeks," said Michael Pearce, senior U.S. economist at Capital Economics, in a note to clients.

Imports were unchanged from December, with a rise in petroleum imports offset by declines in other categories. Exports fell 1.3% in January, including reduced shipments of capital goods and industrial supplies.

The overall trade deficit in January was the largest since October 2008. Excluding services, the trade gap for goods alone was the largest since July 2008.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the wider deficit in January was driven by moves in two noisy categories, oil and airplanes, that should fade going forward.

"The headline trade numbers are going to look much better over the next few months," he said in a note to clients.

The monthly trade deficit in goods with China widened to its highest level since September 2015, and the U.S. goods deficit with Canada hit its highest level since the end of 2014. Those figures weren't adjusted for seasonality.

In general, data on international trade can be volatile from month to month, and the figures weren't adjusted for inflation. Still, the broader trend also shows a widening trade deficit. Compared with a year earlier, the trade gap in January widened 16.2% as imports climbed 7.4% and exports rose a more modest 5.1%.

Mr. Trump has long argued the U.S. should reduce its trade deficit, and last week announced plans to impose a 25% tariff on imported steel and a 10% tariff on imported aluminum to bolster domestic production of those metals.

He shrugged off concerns that other nations might retaliate with duties targeting U.S. exports, tweeting Friday that when a country "is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win."

Business groups and many economists have been critical of the proposed tariffs. Federal Reserve Bank of Atlanta President Raphael Bostic, speaking Wednesday in Fort Lauderdale, Fla., said protectionism "is often not helpful for the broader economy," and while trade barriers might lift an individual sector, they will cause more problems than the policy solves.

Imports of steel and aluminum are relatively small compared with the overall U.S. economy, totaling about 0.2% of economic output, according to JPMorgan Chase & Co. economists Michael Feroli and Jesse Edgerton. That could mute the proposed tariffs' effects on inflation and the broader economy, they said last week in a note to clients, though they cautioned that "more risks would obviously arise if this action were to initiate retaliatory action."

The data in Wednesday's report predated Mr. Trump's announcement. In January, the dollar value of imported iron and steel mill products declined from the prior month, as did the value of imported bauxite and aluminum.

The U.S. economy has run overall trade deficits for decades, during both economic expansions and recessions, which economists say reflects the fact that Americans consume more than they produce relative to the rest of the world.

The U.S. exports more services than it imports, offsetting in part its larger trade deficit in goods.

Rising incomes and low unemployment have been supporting U.S. growth and domestic demand for imports. A weaker dollar and stronger growth overseas, meanwhile, have boosted foreign demand for U.S.-made products.

"Economic activity abroad...has been solid in recent quarters, and the associated strengthening in the demand for U.S. exports has provided considerable support to our manufacturing industry," Federal Reserve Chairman Jerome Powell said last week during testimony before Congress.

Michael S. Derby contributed to this article.

Write to Ben Leubsdorf at ben.leubsdorf@wsj.com


(END) Dow Jones Newswires

March 07, 2018 11:34 ET (16:34 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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