Record US imports widen trade gap in October

US imports rose to the highest level on record in October, pushing the trade gap to its widest in nine months, according to government data released Tuesday, which could become a drag on growth.

The higher deficit was pushed by rising oil prices, as well as higher imports from China ahead of the holiday shopping season, the Commerce Department said in its monthly report.

The mounting trade deficit comes the administration of President Donald Trump enters the latter stages of fraught negotiations with Mexico and Canada to revamp the North American Free Trade Agreement.

Boosted by a weaker US dollar, the October trade gap rose 8.6 percent compared to September, to $48.7 billion, the highest since January, surpassing analyst expectations for an increase of only 5.6 percent.

Trump took office on a nationalist economic agenda, pledging to bring deficits down by exiting or renegotiating trade pacts and aggressively policing the export practices of major trading partners in order to boost growth and create US jobs.

The administration has ramped up retaliatory trade measures against China and other countries, imposing duties on goods like Chinese aluminum, which Washington says are unfairly subsidized or dumped on US markets.

- Drag on GDP growth -

Economists said the unexpectedly weak trade numbers could slow the economy in the October-December quarter, with the deficit potentially shaving as much as a full percentage point off GDP growth.

"We imagine that the gap will narrow somewhat and we have only a half-point drag in our GDP calculations but there is risk here," RDQ Economics said in a client note.

Jim O'Sullivan of High Frequency Economics said if sustained for November and December the deficit level "would result in net exports subtracting more than a full point from the annualized real GDP growth rate in Q4."

While he also expects a reversal of the high deficit, he is forecasting growth of just 2.5 percent, down from 3.3 percent in the July-September quarter.

However, the economists noted that amid strong demand and near full employment, rising imports can signal that domestic production is unable to meet demand rather than subtracting from economic activity.

It was the second straight month in which the US trade gap widened, as imports of goods and services rose by 1.6 percent over September to $244.6 billion, seasonally adjusted, the highest level since the Commerce Department began publishing the statistic in 1992.

Exports remained elevated but were unchanged at $195.9 billion, despite weakness in capital goods, autos and food and beverage exports. But exports of services were the highest on record at $65.6 billion.

Year-to-date, the deficit was 11.9 percent higher than the same 10 months in 2016.

The deficit was driven in part by goods imports from China of $48.2 billion, an all-time high. Exports to China, meanwhile, were the highest in almost four years, at $13 billion, bringing the US trade deficit with that country to $31.9 billion in October.

Imports of goods also increased from Mexico to $28.7 billion, and from the European Union to $39.4 billion. Exports of goods to Mexico rose to a three-year high of $22.1 billion.

Total goods imports were $198 billion, their highest since May 2014. Imports of industrial supplies and consumer goods rose, with mobile phones and transportation services each increasing by $300 million.

Average prices for imported crude oil hit a two-year high at $47.26 a barrel, moving the value of crude imports up by $1.5 billion.

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