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U.S. trade deficit shrinks as global economy gathers strength

President Trump signed executive orders on trade in the Oval Office on March 31. (Jabin Botsford/The Washington Post)

The U.S. trade deficit dropped sharply in February compared with the previous month, data released Tuesday showed, as a stronger global economy helped stoke demand for American-made goods.

The trade deficit, the gap between U.S. imports and exports of goods and services, fell to $43.6 billion in February, down from $48.2 billion in January. The drop exceeded economists’ expectations by more than $1 billion.

U.S. goods exports to the rest of the world rose as shoppers in other countries purchased consumer goods, cars and other American-made products.

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The Trump administration has said that shrinking the trade deficit is one of its primary goals. But Chris Rupkey, chief financial economist at MUFG Union Bank, said in a note Tuesday morning that the positive February numbers had nothing to do with the new administration, as “trade orders’ shipping decisions both in and out were made months ago.”

President Trump issued two executive orders on trade last week, one ordering the government to prepare a report on the bilateral trade deficits the United States maintains with other countries, and another ordering tougher enforcement of existing measures against dumping and other unfair trade practices.

The U.S. trade deficit is likely to be an issue when Trump meets with Chinese President Xi Jinping on Thursday in Florida.

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Trump has blasted Chinese leaders about the U.S. trade deficit with China and the unfair trade policies he says contribute to it. He has said he would press China on ways to narrow the trade gap, but he also has a host of other issues to bring up at the meeting, including the nuclear threat from North Korea.

Economists, however, say that altering a long-standing pattern of trade between the United States and China will be difficult.

“Despite vows to bring it down, it's unlikely that the new administration's policies will be able to alter the course of the trade balance, which is buttressed by the high dollar and comparatively strong U.S. demand vis-à-vis the rest of the world,” Michael Dolega, senior economist for TD Economics, said in a note Tuesday. “Moreover, any policies that serve to disrupt global trade may result in unintended negative consequences for the American economy.”

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Economists and advocates of free trade worry that the administration's support for tougher trade protections could spark retaliatory measures from other countries, potentially setting off a global trade war that would weigh on U.S. exports.

The data released Tuesday showed that the U.S. trade deficit in goods with China fell to $23 billion in February, as merchandise imports from China fell by a record $8.6 billion.

But economists cautioned that data from China in January and February often fluctuates significantly for reasons that are unrelated to economic trends. The timing of a major national holiday in January probably brought a rush of shipments, adding to the significant trade deficit the United States recorded in January and subtracting from the February numbers.

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“The Chinese trade data in January and February is affected by the timing of their main holiday, Chinese New Year,” said David Dollar, who was the U.S. Treasury Department’s economic and financial emissary to China from 2009 until 2013. Dollar said there were a “rush of shipments” in January as “Chinese firms were trying to get their stuff out before the holiday.”

The timing of the Chinese New Year holiday is based on a lunar calendar and may fall in January in some years and February in others, which distorts year-on-year comparisons of the data. To account for this, many economists add January and February data together, Dollar said.

Looking at those two months, the U.S. trade deficit in goods with China fell from $57 billion in 2016 to $54.3 billion in 2017, a decline of 4.7 percent that reflects stronger growth in China pulling in more U.S. imports, Dollar said.

What U.S. trade data released Tuesday morning does appear to reflect is the gathering strength of the global economy, a significant contrast with last year when global trade flows were poised to slow. At a meeting of the world’s largest economies in March, Christine Lagarde, the managing director of the International Monetary Fund, remarked that growth was gaining momentum around the world.

“[T]here are signs that the global economy has reached a turning point, even though uncertainties remain,” she said.