US trade deficit falls in 2019 for the first time in six years

At $17.1 billion, petroleum exports in December were the highest on record

The U.S. trade deficit dropped for the first time in six years in 2019 as the White House's trade war with China curbed the import bill, helping the economy to continue growing moderately in the fourth quarter despite a slowdown in consumer spending.

The Commerce Department said on Wednesday the trade deficit fell 1.7% to $616.8 billion last year, the first drop since 2013. Goods imports tumbled 1.7% last year, with exports decreasing 1.3%, showing that the Trump administration's "America First" agenda decreased the flow of goods.

Goods imports, however, rebounded sharply in December, boosting the trade deficit 11.9% to $48.9 billion that month. Data for November was revised to show the gap tightening to $43.7 billion instead of $43.1 billion as previously reported. Economists polled by Reuters had forecast the trade gap would widen to $48.2 billion in December.

President Donald Trump, who has dubbed himself "the tariff man," pledged on both the campaign trail and as president to reduce the deficit by shutting out more unfairly traded imports and renegotiating free trade agreements.

At the height of the U.S.-China trade war last year, Washington slapped tariffs on billions worth of Chinese goods, including consumer products, leading to a decline in imports.

Tensions in the 19-month U.S.-China trade war have eased, with Washington and Beijing signing a Phase 1 trade deal last month. The deal, however, left in place U.S. tariffs on $360 billion of Chinese imports, about two-thirds of the total.

Chinese Imports Drop

The White House has also sparred with other trading partners, including the European Union, Brazil and Argentina, accusing them of devaluing their currencies at the expense of U.S. manufacturers.

The politically sensitive goods trade deficit with China fell 6.0% to $24.8 billion in December, with imports shrinking 7.7% and exports falling 12.2%. It tumbled 17.6% to $345.6 billion in 2019. But the goods trade deficit with Mexico jumped to a record high of $101.8 billion last year. The deficit with the European Union also reached an all-time high of $177.9 billion.

When adjusted for inflation, the goods trade deficit increased $4.3 billion to $80.5 billion in December.

Trade added almost 1.5 percentage points to GDP growth in the fourth quarter, exceeding the 1.20 percentage points contribution from consumer spending, which accounts for more than two-thirds of U.S. economic activity.

The economy grew at a 2.1% annualized rate in the fourth quarter, matching the pace notched in the July-September period. It expanded 2.3% in 2019, which was the slowest in three years, after growing 2.9% in 2018.

In December, goods imports surged 3.2% to a seven-month high of $207.5 billion, after declining for three straight months. Goods imports were boosted by a $1.7 billion increase in crude oil imports, which contributed to a $4.0 billion jump in imports of industrial supplies and materials. There was also a $1.2 billion increase in imports of other goods.

Economists believe a 15% tariff on $110 billion worth of Chinese goods that came into effect on Sept. 1 had weighed on imports in the prior months. They also say anticipation that the Phase 1 trade agreement would roll back the tariffs could have encouraged companies to hold off on imports in late 2019.

Goods exports rose 0.9% to $137.7 billion in December. They were lifted by a $1.5 billion jump in shipments of crude oil as well as a $1.0 billion increase in exports of other goods. But motor vehicle and parts exports fell $1.0 billion to $12.4 billion, the lowest since November 2016.