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US trade deficit declines for 1st time in 6 years amid trade tensions

US TRADE | 05 de febrero de 2020

View of containers at the Port of Oakland, California.. EFE-EPA/JOHN G. MABANGLO/File

By Alfonso Fernandez

 

Washington, Feb 5 (efe-epa).- For the first time in six years, the US trade deficit in goods and services declined in 2019, falling by 1.7 percent due to the uneven reduction in both imports and exports amid the trade and tariff war and slower global growth.

The accumulated trade deficit during 2019 was $616.8 billion, the lowest registered since 2013.

In its report released on Wednesday, the Department of Commerce said that last year US exports fell by 0.1 percent to $2.5 trillion, while imports declined by 0.4 percent to $3.1 trillion.

Although the overall deficit declined in 2019, in December the monthly deficit grew by 12 percent to $48.9 billion.

The big contributor to the decline in the trade deficit last year was the reduction in the trade imbalance in goods with China, with that figure falling by 17.6 percent to $345.6 billion, with declines in both imports - by 16.2 percent - and in exports (11.3 percent) within the framework of the ongoing trade war between Washington and Beijing.

The figures were released after in January President Donald Trump, who came into office in January 2017 with an aggressive agenda of economic protectionism, touted the conclusion of the "first phase" of a trade pact with China as a victory, an agreement whereby the two parties are seeking to reduce bilateral trade tensions and tit-for-tat rounds of tariff hikes on each other's goods.

The trade war accounts for a good part of the decline in the trade deficit with China, according to Ward McCarthy, the chief financial economic for the Jefferies LLC consulting group.

The dispute between the two largest economies in the world has consequences far beyond US and Chinese borders and both countries have seen their growth rates reduced in recent months.

The US economy slowed down in 2019 to a 2.3 percent growth rate from 2.9 percent in 2018.

Meanwhile, China's GDP rose by 6 percent (on an interannual basis) in the third quarter, the worst quarterly figured to be announced since March 1992, when Beijing began officially reporting such data.

In addition, Trump managed early this year to deliver on another of his big promises: signing the new North American trade pact with Canada and Mexico, known as the USMCA and designed to replace the North American Free Trade Agreement (NAFTA).

Nevertheless, the US trade deficit with Mexico hit an historic high in 2019 of $101.8 billion, $21.1 billion more than in 2018.

This performance comes despite Trump's promises to rebalance the deficit that, he claims, is due to the unfair treatment given to the US by its trade partners.

In fact, economists say that the trade balance is not a significant indicator of a country's economic health.

The US, as the world's largest economy, is often seen to increase its trade deficits during good economic times as Americans' appetites for imports grows.

In its latest forecasts - released at the Global Economic Forum in Davos, Switzerland, last month - the International Monetary Fund predicted that the moderation in US growth would continue, coming in at 2 percent in 2020 after showing 2.3 percent growth in 2019, and being further dampened in 2021 to 1.7 percent.

The numbers for China, despite the deceleration in its growth rate noted by the IMF, are still far above those for most other countries, and the forecast is for 6 percent growth in 2020 and 5.8 percent in 2021.

Even so, this is a drop from the 6.1 percent growth Beijing enjoyed in 2019, which nevertheless is the lowest growth rate reported since 1990.

 

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