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Strong domestic demand is raising the US trade deficit to record highs



The US trade deficit jumped to a record high in March amid growing domestic demand, which is attracting imports, and the gap could widen further as the country’s economic activity recovers faster than its global rivals.

Manufacturers do not have the capacity to meet the growth in demand due to limited resources and difficulties in the supply chain. The stocks are very lean. Demand is driven by rapidly improving public health and huge government aid to households and businesses to soften the impact of the COVID-1

9 pandemic.

“The increase in the trade gap is likely to be a constant feature of the economy this year, as domestic demand exceeds the productive capacity of the US economy,” said Conrad Dequadros, a senior economic adviser at Brean Capital in New York.

The trade deficit rose 5.6 percent to a record $ 74.4 billion in March, the trade department said on Tuesday. The trade gap is in line with economists’ expectations.

Imports jumped 6.3 percent to a record $ 274.5 billion in March. Imports of goods increased by 7.0% to 234.4 billion dollars, which is also an all-time record. Imports of consumer goods have the highest record, as does food and capital goods.

The nation imports a number of goods, including clothing, furniture, toys, semiconductors, motor vehicles, petroleum products and telecommunications equipment. But imports of civil aircraft and mobile phones declined.

The government has provided nearly $ 6 trillion for a pandemic in the past year. Americans over the age of 16 are now eligible for the COVID-19 vaccine. Demand during the pandemic shifted to service goods, with Americans lost at home. The economic boom is also exacerbated by the Federal Reserve’s ultralight position.

Wall Street shares traded lower. The dollar rose against a basket of currencies. US Treasury Department prices were higher.

EXPORTS EARN BASE

Most imports in March came from China, increasing the politically sensitive trade deficit with Beijing to $ 27.69 billion from $ 24.62 billion in February, reversing the tariff-enhanced improvement during the Trump administration. .

Ships and containers shipped to Long Beach Harbor in Long Beach, California, USA, January 30, 2019. REUTERS / Mike Blake / File Photo

“The expansion of the trade balance with China over the past few months has erased the tightening that occurred in 2019 as a result of tariffs,” said Veronica Clark, an economist at Citigroup in New York.

Imports from Mexico reached a record high in March, as did those from South Korea.

Exports accelerated in March, but continued to lag behind in import growth. Exports rose 6.6% to $ 200.0 billion. Exports of goods jumped 8.9% to 142.9 billion dollars.

They were driven by industrial supplies and materials and capital and consumer goods. The pandemic continues to hamper trade services, especially travel. With $ 17.1 billion in March, the surplus in services is the smallest since August 2012.

Exports are expected to increase later this year as global economic growth gathers steam, allowing foreigners to buy more American goods. The resumption of international travel and personal training at US universities in the fall is likely to lead to an improvement in trade in services.

“As vaccinations are gaining momentum abroad and the global recovery is gaining momentum, trade must begin to normalize,” said Jay Bryson, chief economist at Wells Fargo in Charlotte, North Carolina. “Export growth must begin to compete with import growth, which will continue to be supported by growing domestic consumer and business demand.”

Strong demand stimulates production. A separate report from the Ministry of Commerce on Tuesday showed that factory orders rose 1.1% in March after falling 0.5% in February. Business equipment costs were also higher than originally thought. Read more

Despite the widening trade deficit, the economy grew by 6.4% per year in the first quarter, the second fastest growth rate in gross domestic product since the third quarter of 2003, fueled by subdued domestic demand. This followed a growth rate of 4.3% in the fourth quarter.

Most economists expect double-digit GDP growth this quarter, which will position the economy to grow by at least 7% in 2021, the fastest since 1984. The economy is shrinking by 3.5% in 2020, which is the worst performance in 74 years.

“The US economy is poised to emerge from the pandemic early and hard, thanks to a swift vaccination campaign,” said Evan Carson, an economist at Moody’s Analytics in West Chester, Pennsylvania.

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