The U.S. trade deficit rose to $55.5 in October, 1.7% (m/m) larger than the (revised) $54.6 billion recorded in September. October marks the widest deficit since this past February.

Nominal exports fell 0.1%, with notable declines in food and beverages (soybeans), and automotive products. Imports rose 0.2% in the month, driven by consumer and automotive goods.

Nominal services exports rose 0.1%, while imports of services rose 0.4%.

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Adjusted for inflation, real goods exports fell 0.8%,and real goods imports fell 0.2% on the month.

Today’s report shows that trade deficits through October (year-to-date basis) have widened this year between the U.S. and most of its major trading partners, with some exceptions (UK, Japan, Korea, and Taiwan). The U.S. trade deficits with Europe and China are on track to be the largest ever.

Key Implications

October’s trade data is the first full month after the U.S. imposed a 10% tariff on $200bn in Chinese goods, and there may be some evidence that this action is distorting trade data. For one, the ongoing weakness in food and beverage exports, including soybeans, likely reflects a continuation of the trend of reduced exports to China after the U.S. announced its intent to tariff $50bn in Chinese goods this past spring. Moreover, consumer goods imports ramped up a little earlier than expected this year for the holiday season, consistent with reports that firms were anxious to bring in product in advance of tariffs.

Widening trade deficits with its major trading partners suggest that the U.S. administration’s actions to rebalance trade in favor of the U.S. have yet to make much headway. This could go two ways. First, the U.S. administration may view this as the need to double down on tariffs, and thereby escalate trade tensions. Such an escalation would likely exert an economic drag at a time when the global economy has already lost a lot of momentum, in part due to trade uncertainty. Second, the U.S. administration could act to address some of the structural factors that are largely responsible for trade deficits, such as its dependency on imported oil and rising fiscal deficits that are largely financed by capital from abroad.

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