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story.lead_photo.caption In this March 6, 2019, file photo, container ships docked at the Port of Oakland wait to be unloaded in Oakland, Calif. On Wednesday, April 17, the Commerce Department reports on the U.S. trade gap for February. (AP Photo/Ben Margot, File)

WASHINGTON -- The U.S. trade deficit fell for the second-straight month in February, and the politically sensitive deficit in the trade of goods with China narrowed.

The Commerce Department said Wednesday that the gap between the goods and services that the United States sells and what it buys from the rest of the world dropped 3.4 percent to $49.4 billion in February, the lowest since June. The deficit had slid 14.6 percent in January. Exports climbed 1.1 percent to $209.7 billion on a surge in shipments of civilian aircraft, passenger cars and medicine. Imports rose 0.2 percent to $259.1 billion.

The goods deficit with China dropped 28.2 percent to $24.8 billion: Exports to China rose 18.2 percent to $8.4 billion while imports from China fell 20.2 percent to $33.2 billion.

President Donald Trump has imposed tariffs on $250 billion in Chinese imports in a fight over U.S. allegations that China steals U.S. technology and forces foreign firms to turn over trade secrets in exchange for access to the Chinese market. China has retaliated by targeting $110 billion worth of American products.

The shrinking trade gap may give fodder for Trump to boast of progress on winning more-favorable trade terms after the gap ballooned last year. Yet exports will face difficulties including slowing global growth and Boeing's woes after two fatal crashes, while an inventory overhang at U.S. businesses may weigh on imports.

Trump campaigned on a pledge to reduce America's long-standing trade deficit with the rest of the world. He sees the gap as a sign of economic weakness, and as the result of bad trade deals and abusive practices by America's trading partners.

In addition to targeting Chinese products, Trump has imposed tariffs on imported steel, aluminum, dishwashers and solar panels. Also, he is threatening to tax imported cars.

In fact, the threat of U.S. auto tariffs -- and retaliatory tariffs by U.S. trading partners -- may have boosted American auto exports and improved the trade balance in February. "Automakers may have been trying to rush U.S.-made units to their destinations just in case the Trump administration imposed tariffs on imported vehicles," Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a research note.

The report also showed that American soybean exports rose 15.6 percent from the previous month to $1.4 billion, after quadrupling in January.

The merchandise trade deficit widened with Mexico, the surplus with Canada declined and the gap with Europe narrowed.

A narrowing trade deficit adds to America's gross domestic product -- the broadest measure of economic output. So after the trade numbers came out, economists were upgrading the outlook for U.S. economic growth. Stanley said he was likely to push his forecast for the first quarter above an annual rate of 2 percent, up from the 1.7 percent he'd penciled in before the Commerce Department released the trade numbers.

JPMorgan Chase & Co. economists raised their gross domestic product forecast after the trade report to about a 2.5 percent annualized growth pace in the first quarter from 2 percent. Goldman Sachs Group Inc. forecasters boosted their tracking estimate to 2.1 percent from 1.7 percent and said they now expect a positive contribution from net trade to gross domestic product growth, while the Federal Reserve Bank of Atlanta's GDPNow model estimate increased to 2.4 percent.

The Commerce Department will release first-quarter gross domestic product figures on April 26. Growth was 2.2 percent in the final three months of 2018.

Mainstream economists view trade deficits as the result of an economic reality unlikely to yield to changes in trade policy: Americans buy more than they produce, and imports fill the gap. The strong U.S. economy also encourages Americans to buy more foreign products.

U.S. exports are also hurt by the American dollar's role as the world's currency. The dollar is usually in high demand because it is used in so many global transactions. That means the dollar is persistently strong, raising prices of U.S. products and putting American companies at a disadvantage in foreign markets.

The U.S. has been much more competitive in the trade of services such as banking and education than in the trade of goods such as appliances and clothing. In February, U.S. services exports hit a record $70.1 billion, producing a services surplus of $22.6 billion. But America ran a $72 billion deficit in goods.

Shipments abroad of civilian aircraft rose $2.2 billion, or 60.5 percent, in February from the previous month, easily leading all categories of goods. Other sectors with gains included passenger cars, pharmaceuticals and crude oil. Imports of consumer goods rose, while industrial supplies and materials declined.

Wells Fargo & Co. analysts said this week that the Boeing 737 Max grounding will cause a drag of about 0.2 percentage point on U.S. economic growth in the second quarter, during production cuts and halted deliveries.

The latest data may partly reflect companies rushing to beat what at the time was Trump's March 1 deadline for boosting levies on imports from China. Trump gave an indefinite reprieve on the tariffs in late February, citing "substantial progress" in negotiations, which are showing signs of nearing an end.

In addition to tariffs, a cooling in world economic growth will likely continue to weigh on trade. The International Monetary Fund last week cut its forecast for global expansion to its lowest level since the recession. In the U.S., economists expect the country's growth to decelerate less than originally thought in the first quarter but cut forecasts for the second half of the year, according to a Bloomberg survey this month.

The report, originally scheduled for April 3, was delayed because of the partial government shutdown earlier this year. The U.S. typically runs a deficit in goods and a surplus in services.

Information for this article was contributed by Paul Wiseman of The Associated Press; and by Reade Pickert, Kristy Scheuble and Jeff Kearns of Bloomberg News.

A Section on 04/18/2019

Print Headline: February's U.S. trade deficit cut to $49.4B


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