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Writer's pictureRealFacts Editorial Team

U.S. Trade Deficit In Goods

Trade Deficit

A nation increases their trade deficit in goods when it imports more goods than it exports. The United States has been running a trade deficit in goods since the mid-1970s. The deficit in goods increased 15% in September, reaching its highest level in the last two and a half years. In dollar value, the deficit was $108.2 billion in September, up from $94.2 billion in August. Wall Street was expecting a deficit of $96 billion. Imports increased 3.8% while exports decreased 2%. This increase was much larger than analysts had forecast, so much so that we could see a noticeable decrease in GDP into the end of 2024.

 

Trade

 

The large dockworkers strike that occurred earlier this month could potentially be a reason for this large increase in September. The strike had potentially large supply-chain effects and so retailers increased their amount of import orders so they could have the inventory needed for the holiday season in case of a catastrophic supply chain disruption.  The strikers, who initially striked over labor contract disputes, have reached an agreement to suspend the strike until January. Even without the strike in mind, an increase in imports leading up to the holiday season seems inevitable.

 

Inventory data was also released for September, Jeffry Bartash of MarketWatch wrote, “An advanced look at retail inventories of unsold goods showed a sharp 0.8% increase in September. An early look at wholesale inventories reflected a 0.1% decline. Higher inventories add to GDP, but not enough to offset the drag from a larger trade gap. One Wall Street firm reduced its GDP forecast by almost a full percentage point.”

 

An increasing goods deficit reduces a nation’s gross domestic product. United States economic growth and GDP has increased rapidly in the third quarter of 2024. Megan Leonhardt of Barron’s wrote, “Third-quarter economic growth ranged from hot to hotter”. Most analysts are expecting a 2.6% growth rate for the economy in the third quarter, slightly lower than the 3% in the second quarter, but still a remarkably strong rate of growth. This is great news for the economy, however, the increasing trade deficit may have negative effects on GDP growth. Megan Leonhardt added, “Net trade is also expected to have weighed on growth, as the September nominal goods trade deficit was the widest since March 2022, according to Tuesday’s advance trade deficit release. The latest data showed a sizable 3.8% month-over-month increase in goods imports. The surge in imports likely reflected shippers’ efforts to get merchandise into the U.S. before the longshoremen’s strike started on Oct. 1, writes Stephen Stanley, Santander’s chief economist. “If this is in fact the case, then it would be reasonable to expect imports and, in turn, the trade deficit to drop in October and forward,” he noted. But Stanley expects that to create a substantial drag on the net exports component of third-quarter real GDP, and revised his forecast down to 2.2%, from a 3.1% estimate before Tuesday.” Although economic growth has been remarkably strong this year, an ever widening trade deficit could prove troublesome for GDP growth heading into 2025.

 

The changes in the trade deficit will be interesting to watch going forward as we move into the end of 2024 and into a heated presidential election. The proposed policies of each candidate could have several effects on the trade deficit. Trump’s plans for heavy tariffs on all foreign imports, specifically China’s, could have both positive and negative impacts on the trade deficit. With tariffs, the price of imports will increase rather drastically. This means that companies will either have to pay these increased costs, or they will be forced to buy more from domestic manufacturers.

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