Rising Dollar Exacerbates U.S. Trade Deficit

Strong U.S. dollar continues to fuel trade deficit. (Pixabay)

By Lucy Ren

The U.S. trade deficit went up 17.1 percent to $46.6 billion in December. Impacted by the strong dollar, exports decreased by 0.8 percent and imports expanded by 2.2 percent, the highest growth since March.

For all 2014, the U.S. goods and services deficit increased 6 percent to $505 billion. Exports rose 2.9 percent and imports declined 3.4 percent.

The December deficit exceeded economists’ forecast average of $38.3 billion compiled by Bloomberg. “We certainly expected it to widen, but not by nearly as much as it has been,” said Augustine Faucher, vice president of the PNC Financial Services Group.

Faucher said the widening deficit was mainly caused by the stronger U.S. dollar and “slower growth overseas,” including the soft euro and slower growth in China and other developing economies.

“Part of what may be going on is the big swing in oil prices,” Faucher said. He suspected that “the decline in oil prices isn’t quite being captured in the trade numbers yet.”

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Augustine Faucher, vice president of the PNC Financial Services Group, explains the widening U.S. trade deficit.

Jennifer Lee, chief economist at BMO Capital Markets, said the energy-related products imports were “very interesting.” At a 16 percent increase from the year before, the imports in this sector were the largest in three years.

The U.S. deficit with China increased $23.9 billion to $342.6 billion in 2014. Lee pointed out that this is mainly due to the weakening of China’s yuan.

“The dollar is getting stronger because of the diverging monetary policy,” Lee said. “But almost all other major currencies are depreciating against the dollar now, making foreign goods more attractive to U.S. imports. And that is not what we want right now.”

Scott Brown, chief economist at Raymond James & Associates Inc., said “there was an unusual narrowing of the deficit in November,” and the wider December number was “nearly a rebound from that.”

The trade deficit accounted for 2.9 percent of U.S. gross domestic product in 2014, up from 2.8 percent in the year before.

Photo on top: Strong U.S. dollar continues to fuel trade deficit. (Pixabay)