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The ongoing tariff war whipsawed companies again in October, with the U.S. merchandise trade deficit narrowing to the lowest level in more than a year. It was led by a drop in imports — particularly autos and consumer goods.
That brings good news and bad:
- The good: The drop in imports is likely temporary because auto intake probably weakened amid the now-over General Motors (NYSE:GM) strike, and consumer goods demand slowed amid a fresh tariff round in September. Both categories are expected to recover in the coming months.
- The bad: Cross-border commerce is weakening overall, and the trade war is contributing to the slowdown for companies.
The U.S. added 15% tariffs Sept. 1 on $110 billion in Chinese imports, including popular purchases such as the Apple (NASDAQ:AAPL) watch, clothing and shoes. As a result, imports of the items from China dropped in September, and it appears as if that’s continued into October.
At the same time, the boost in inventories and a smaller trade gap should help prop up data on the economy’s health. Barclays (LON:BARC) increased its estimate for fourth-quarter gross domestic product growth to 1.6% and Amherst Pierpont Securities bumped its up to 2.7%. Macroeconomic Advisers increased their GDP tracker to 1.9% for the final three months of the year.
Even though it’s increasing numbers for year-end, the overall trend is still negative, according to Barclays (LON:BARC). Total U.S. exports also declined in October, hitting the lowest level since the start of 2018.
“While a narrower trade deficit may mechanically add to GDP growth,” wrote economist Michael Gapen, “underneath that veneer is further evidence of a softening in activity.”
Charting the Trade War
The pressure U.S. Trade Representative Robert Lighthizer and the Trump administration are applying on the World Trade Organization may, in just a few weeks, render the Geneva-based arbiter of trade inoperative.
Today’s Must Reads
- ‘Final throes’ | President Donald Trump declared Tuesday that talks with China on the first phase of a trade deal were near completion after negotiators from both sides spoke by phone.
- Auto alert | British automakers warn that the next U.K. government needs to deliver a “world-beating Brexit trade deal” to bolster their competitiveness and safeguard jobs following a split from the European Union.
- EU cries fowl | The European Parliament voted to include chicken breasts that have wing bones attached in an EU duty-free import quota for boneless versions of the meat from Ukraine.
- Iran sidestep | Iran plans to manufacture $11 billion worth of products in the next two years to replace some imports and help contend with crippling U.S.-led sanctions.
- Lingering Nafta | A year ago, leaders from Canada, Mexico and the U.S. signed the successor to Nafta — the U.S.-Mexico-Canada Agreement — but its long road to implementation isn’t yet over. Here’s everything you need to know.
- Brexit fog | The possibility of the U.K. leaving the EU without a deal appears to have receded for the moment, although if the withdrawal agreement is implemented, it may re-emerge as a possibility at the next stage of negotiations.
- Hong Kong blow | U.S. legislation that would require annual reviews of Hong Kong’s special trade status — if signed by Trump — would put the city’s economy in a precarious position.
- Nov. 29: Vietnam exports
- Dec. 1: South Korea exports
- Dec. 5: U.S. trade balance
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