Despite Free Trade Agreements, U.S. Exports Fall

The U.S. government’s budget deficit fell to its lowest level since 2008 as the trade deficit rose due to weaker demand for U.S. products abroad and Federal cost-cutting at home.

The U.S. government’s budget deficit fell to its lowest level since 2008 as the trade deficit rose due to weaker demand for U.S. products abroad and Federal cost-cutting at home.

The gap between imports and exports rose by 7.6% to $43 billion in September, the Commerce Department reported on Tuesday. Most economists had expected September to see a deficit similar to the $40 billion in August, but weakening economic conditions in Europe, a slowdown in Asia, and a stronger dollar was hitting American exporters, while improving conditions for U.S. consumers and a steady reliance on imports from China and Asia caused the deficit to rise.

After the announcement, analysts noted that the U.S. dollar, which strengthened to a four-year high against the six largest world currencies in this week’s trading, is pinching American exporters by making their goods costlier abroad. Already several publicly traded companies have announced disappointing earnings were negatively impacted by currency exposure abroad.

Falling Exports Despite FTAs

In newly industrialized nations, the U.S. saw its trade gap widen. This trend is alarming to economists, who predicted that free trade agreements between the U.S. and these nations would cause rising demand for U.S. goods amongst consumers in those nations. However, the reverse has happened. The U.S. saw a 26% growth month-over-month in its trade gap with South Korea, and an 11.3% rise in its trade gap with Taiwan. 

In North America, the U.S. saw its trade balance with Canada and Mexico worsen substantially. Mexico’s trade gap swelled 9.1% month-over-month to $4.8 billion while the trade gap with Canada exploded 60% month-over-month to $3.9 billion. Year-to-date, the U.S. has a $65 billion trade gap with both nations.

Declining Exports, Rising Imports

U.S. exports fell 1.5% to $195.6 billion in September, the lowest level since April this year, after reaching a record in August. Imports were steady at $238.6 billion despite declining demand for autos, fuel, and capital equipment.

Declining exports has aggravated the widening trade imbalance between the United States and developed nations. The trade gap between the U.S. and China rose to a record $35.6 billion from $30 billion in August, as slowing growth in the Asian country and steady demand for manufactured imports into America caused the gap to widen.

The U.S. also saw its trade imbalance with the EU rise from $12 billion in August to $13 billion in September. Most nations saw higher U.S. exports than imports, except Germany, whose trade deficit fell from $7 billion in August to $6 billion in September.

Energy Independence 

Thanks to greater domestic oil production and hydrofracking, increasing optimism that the United States will reach energy independence has caused some analysts to believe the country will no longer need to import petroleum products by 2020. Combining with greater production, increasing car fuel efficiency, a deceleration of total miles driven in the U.S. since 2008, and greater domestic oil production have been headwinds for energy imports into the United States.

Those hopes have more conviction now, thanks to a 6.6% decline in mineral fuel and lubricant imports for 2014, from $290 billion year-to-date in 2013 to $271 billion year-to-date in 2014. Most of the fall in imports was driven by a sharp decline in petroleum and gas imports, which were $22 billion less compared to the same period a year ago.

Declining U.S. oil imports helped WTI crude oil futures fall below the $80 resistance late in October, compared to Brent crude oil futures have fallen to below $83 in early November.