The deficit rose to $51.4 billion, the largest trade gap since October 2008 and more than 43 per cent higher than in February, the Commerce Department reported Tuesday. Exports were up 0.9 per cent to $187.8 billion, while imports increased 7.7 per cent to $239.2 billion. The trade deficit is the short-fall between exports and imports.
The result suggests that international trade played a bigger-than-expected role in the U.S. economy's anemic growth in the January-March. It could even force the government to further revise down its gross domestic product estimate for the quarter, possibly into negative territory.
Paul Ashworth, chief U.S. economist at Capital Economics, said the massive trade deficit means the U.S. economy "undoubtedly contracted slightly in the first quarter." He estimates GDP in the January-March period fell 0.3 per cent instead of the 0.2 per cent growth the government reported last week.
However, he notes that the surge in imports stems largely from the resolution in February of a labour dispute at West Coast ports, which worked to clear their backlogs in March.
"Assuming that most of the catch-up is now complete... then imports should fall back in April, bringing the trade deficit down to a more normal level too," Ashworth said in a note to clients.
That means the road ahead should be brighter. Economists are looking for growth to rebound in the current April-June quarter to around 2 per cent, climbing to a 3 per cent average in the second half of the year. Rising employment is expected to fuel stronger consumer spending, which would help offset sluggish export growth.
Exports have been hurt by an increase in the value of the dollar against other major currencies over the past year. A strong dollar makes U.S. products more expensive overseas while lowering the price of imported products in the U.S.
The jump in imports in March reflected greater shipments of foreign-made industrial machinery, autos, mobile phones, clothing and furniture.
For the first three months of this year, the trade deficit was 5.2 per cent higher than the same period a year ago. A larger trade deficit acts as a drag on growth because it means more U.S. producers are losing sales to foreign competitors.
The trade gap with China in March surged 38.7 per cent to $31.2 billion. The U.S. trade deficit with China is the largest for any country and is on track to set another record this year.
Imports of petroleum products declined 6.6 per cent to $15.4 billion, the lowest level for imports since September 2004. U.S. exports of petroleum dropped 7 per cent to $7.7 billion. Both declines reflected the big drop in oil prices over the last year.
President Barack Obama has been pushing the benefits of free trade in an effort to convince Congress to pass the legislation he needs to complete a sweeping trade agreement with 11 other nations, an agreement known as the Trans-Pacific Partnership.
The legislation, approved by committees in both the Senate and the House, would force Congress to consider the trade agreement under fast-track rules. That means an up-or-down vote with no amendments from Congress.
The fast-track legislation is expected to win Senate approval but passage in the House will be more challenging. Democrats in both chambers are demanding that the administration negotiate stronger labour and environmental standards and ban currency manipulation, with some believing that China is doing so to gain trade advantages.Suggest a correction