US trade deficit rises in February to 6-month high

WASHINGTON – The U.S. trade deficit rose in February to the highest level in six months as the growth in imports outpaced a modest rise in exports.

The trade gap widened to $47.1 billion, up 2.6 per cent from a January imbalance of $45.9 billion, the Commerce Department reported Tuesday.

Boosted by stronger sales of U.S.-made autos, exports increased 1 per cent to $178.1 billion. It was the first climb since September. Imports were up 1.3 per cent to $225.1 billion, despite a drop in oil imports which fell to the lowest level in 13 years.

Trade has become a major issue in the presidential campaign with Republican Donald Trump and Democrat Bernie Sanders blaming the deficits on unfair trading actions by countries such as China and Mexico. Higher deficits subtract from economic growth.

The deficit for 2015 rose to $539.8 billion, an increase of 6.2 per cent. That shaved 0.6 percentage points from growth. U.S. exporters have struggled with spreading weakness in many major foreign markets including China and Europe. A big rise in the value of the dollar has also hurt because it makes U.S. products more expensive in overseas markets.

Analysts said the further widening of the deficit this year indicates that trade will continue to drag overall growth.

Steve Murphy, U.S. economist at Capital Economics, predicted that trade would sap economic growth by about 0.5 percentage point in the first quarter, helping to hold overall growth to around 1.5 per cent for period.

“While the dollar has actually depreciated recently, the massive earlier surge will remain a big constraint on net exports for the remainder of 2016,” he said.

For February, the deficit with China dropped 2.8 per cent to $28.1 billion, still the largest imbalance with any country. U.S. exports to China fell 2 per cent to $8 billion, the lowest level since June 2011. China, the world’s second largest economy, has slowed more than expected this year. The development sent shockwaves through financial markets at the beginning of the year as investors worried about the impact of the slowdown on global growth.

The deficit with Canada, America’s biggest trading partner, narrowed sharply to $1 billion, down nearly 60 per cent from January. The deficit with Mexico widened to $5 billion, up 14.5 per cent from January.

Oil imports dropped 11.8 per cent in February to $9.9 billion, the lowest level since September 2002. The average price of imported crude oil fell to $27.48 per barrel in February, the lowest level since late 2003.

Even with the small increase in February, U.S. exports of goods and services are 5.5 per cent lower in the first two months of this year compared to the same period in 2015. Economists are hoping that strong domestic demand, fueled by rising employment and higher consumer spending, will be able to offset the adverse impact of falling exports on American manufacturers.