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Economic Forecasts

Exports Rise, but Imports Rise More

Kiplinger's latest forecast on the direction of the trade deficit.

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Interest rates 10-year T-notes at 2.4% by end '17 More »
Inflation 2.0% in '18, up from 1.6% in '17 More »
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Housing Existing-home sales up 1.3% in '17 More »
Retail sales Growing 3.8% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, after nearly flat '16 More »

Overseas sales of U.S. goods and services are benefiting from a quickening tempo of global growth and a decline in value of the once-mighty dollar. Those are major positives for America’s industrial sector. The greenback’s 6% drop this year is making made-in-America products a good buy in foreign markets at the same time that economic growth abroad is picking up.

But imports are rising even faster, meaning that the trade deficit will increase this year. A robust job market is bolstering American shoppers’ buying power and fattening demand for imported goods, from European cars to iPhones made in China. The expected result: a 4% widening in the gap between exports and imports this year, after back-to-back deficits of $500 billion in both 2015 and 2016.

Globally, trade volumes are on a rising trajectory. Major economies in Europe and in Asia, including both China and Japan, are growing. Key nations in Latin America, notably Brazil, are shaking off recession and beginning to expand. That is giving a boost to U.S. exports, which are up 5.8% in the first eight months of 2017. But imports are up by 6.4% so far this year, driven particularly by telecommunications equipment, computers and automobiles. There will be some disruption to monthly patterns in trade data for the remainder of this year — the impact of hurricanes Harvey and Irma, which struck in late August and early September. The storms temporarily shut down ports in the Gulf Coast area, but they won’t have a lasting impact.

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The trade deficit shrank in August by $1.2 billion, to $42.4 billion, the lowest monthly total since September of last year. That reflected a positive combination of higher exports — up 0.4% from July levels, thanks to strong sales of consumer goods, especially pharmaceuticals — and a slight 0.1% drop in imports, driven by the sectors of industrial supplies and capital goods. So far this year, the trade deficit is 8.8% higher than in the comparable period in 2016. But we expect the shortfall to narrow by year-end as exports strengthen.

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One wild card for trade is the Trump administration’s America-first approach to global commerce. The White House regularly cites bilateral deficits as evidence that the United States is not benefiting from trade as it should be, and regularly criticizes trade agreements for not protecting U.S. interests adequately. One of the administration’s first acts was to pull the United States out of talks for the Trans-Pacific Partnership, which would have brought free trade to 40% of the global economy. Contentious talks on renegotiating the North American Free Trade Agreement with Canada and Mexico are under way, and President Trump has pressured South Korea to renegotiate a 2012 trade pact. The administration’s objectives are apparent: to get more business for U.S.

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Sources: Department of Commerce, Trade Data