US Widening Trade Deficit Driven By Weak Export Growth

Data released on Tuesday, showed the US trade deficit widened in January to a new record high. Analysts at Wells Fargo point out it reflects the relative out-performance of the US economy during a pandemic era characterized by volatile swings but generally an environment of faster growing imports and slower growing exports.

Key Quotes:
“The $7.7 million widening in the U.S. trade balance in January pushed the deficit to a record-large $89.7 billion. The widening can be traced to weak export growth at the start of the year. Total exports slid 1.7% during the month with the level of goods down about 1.5% and services exports slipping 2.3%. Consumer goods exports were the main driver of weakness with a $3.2 million decline in pharmaceutical preparation products specifically more than driving the overall decline”.

“But after adjusting for inflation, real goods exports slid nearly 4% in January suggesting a negative impact on GDP growth in the first quarter from trade”.

“Overall, the small share of U.S. exports that go to Ukraine and Russia limits the direct trade risk for the U.S. from the war. Pre-pandemic, U.S. exports to Ukraine and Russia totaled only $2 billion and $6 billion respectively in 2019, which equates to roughly a half a percentage point of total U.S. exports”.

“As expected, the category of imports most exposed is petroleum and coal products, given the large share that comes from Russia (about 15% in 2019). While we expect the direct impact on U.S. trade to be fairly minimal, we’ll continue to keep a watchful eye on all categories directly and indirectly linked to petroleum and natural gas”.