U.S. Trade Deficit Plunges as Exports Hit Two-Year High

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Aided by a jump in exports and a dip in imports, the U.S. trade deficit unexpectedly plunged 13.2% in October to $38.7 billion -- the lowest level since January, the U.S. Commerce Department announced Friday.

A Bloomberg survey had expected the trade deficit to remain unchanged in October at $44.0 billion, after a revised $2.3 billion drop to $44.6 billion in September.

Deficit with China Narrows

In October, exports surged 3.2% to a two-year high of $158.7 billion after an 0.5% increase in September. Meanwhile, imports fell 0.5% to $197.4 billion after a 0.7% decrease in September.

The year-through-October trade deficit is $420.4 billion, up about 39.1% from the $302.5 billion total for the same period a year ago. However, that's down slightly from the year-to-September trade deficit increase of 40.2%.

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In October, the real goods trade deficit, which controls for inflation, decreased to $45.2 billion -- its lowest level since April -- from $50.3 billion in September.

In addition, the trade deficit with key U.S. trade and investment partner China plunged to $25.5 billion in October, from $27.8 billion in September.

The export gain was aided by a weaker dollar, which boosted sales of automobiles, industrial items and supplies, and food and agricultural products. The dollar has fallen about 7% versus the world's other major currencies since early June.

Obama Wants U.S. Exports to Double

Meanwhile, President Barack Obama has set a goal of doubling the nation's exports in five years -- a daunting task, given intense global competition, most trade experts agree. Even so, the U.S.'s new trade pact with South Korea will aid that effort.

The agreement, which still has to be ratified by the U.S. Congress, has the backing of two powerful American unions, the United Auto Workers and the United Food and Commercial Workers, the New York Timesreported Wednesday.

Economists generally prefer that a nation run a trade surplus as opposed to a trade deficit, as it usually implies that a nation's goods are competitive on the world stage, its citizens are not consuming too much, and that it's amassing capital for future investment and economic goals.

In October, trade surpluses were recorded with Hong Kong, $1.9 billion, down from $2.3 billion in October; Australia, $1.3 billion, up from $1.2 billion; Singapore, $600 million, down from $700 million; and Egypt, $500 million, down from $600 million.

Trade deficits were recorded with China, $25.5 billion, down from $27.8 billion in October; European Union, $7.1 billion, up from $6.1 billion; Mexico, $5.8 billion, unchanged from October; OPEC, $5.7 billion, down from $8.9 billion; Japan, $5.7 billion, up from $5.0 billion; Germany, $3.3 billion, up from $2.7 billion; Ireland, $2.7 billion, up from $2.2 billion; Venezuela, $1.2 billion, down from $1.9 billion; South Korea, $1.1 billion, down from $1.3 billion; Canada, $1.1 billion, up from $900 million; and Taiwan, $1.0 billion, up from $900 million.

October: A Pleasant Surprise

October's trade deficit report was certainly a very pleasant surprise, due to the impressive rise in exports. To be sure, the weaker dollar has made U.S. products (such as farm tractors and commercial jets) and services (such as software) more attractive to foreign buyers -- it makes them cheaper -- but there's another factor in the exports rise: emerging market demand.

Emerging markets such as India, Mexico, and Brazil are building-out their infrastructures and the United States has the products and services they need. As long as these young, developing economies continue to grow, that bodes well for U.S. exports, for the revenue of U.S.-based multinational corporations, and for the U.S. economy.

Further, while rising exports alone probably won't eliminate the U.S. trade deficit, it can decrease it substantially -- which will keep more income and wealth at home in the United States for business investment and domestic savings and consumption.
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