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Ahead of the Bell: US trade gap

June 4, 2014

WASHINGTON (AP) — The Commerce Department reports on the U.S. trade deficit for April. The report will be released at 8:30 a.m. EDT Wednesday.

SMALLER GAP: The forecast is that the deficit narrowed slightly to $40.1 billion in April, according to a survey by economic data firm FactSet.

TRADE FLOWS: The deficit had narrowed in March to $40.4 billion, which was down 3.6 percent from a February imbalance which had been the largest in five months. The lower deficit reflected a gain in exports, which rebounded to the second-highest level on record.

A smaller trade deficit can boost growth because it means U.S. companies are earning more on their overseas sales.

In 2013, the trade deficit fell 11.2 percent to $474.9 billion, helping provide a small boost to overall growth.

A larger trade gap in the first three months of this year compared to the fourth quarter shaved nearly a full percentage point from growth, helping to push the economy, as measured by the gross domestic product, into negative territory.

The GDP shrank at an annual rate of 1 percent in the first quarter, hurt by the higher trade deficit, less business stocking of store shelves and a severe winter, which disrupted consumer spending and factory production.

Economists are looking for a strong bounce back in the current April-June quarter with some forecasting that growth could come in around 3.8 percent as the trade deficit narrows and stronger hiring boosts household incomes and consumer spending.

Many analysts believe growth will remain strong at a rate around 3 percent in the second half of the year.

Economists believe a domestic energy boom will help to narrow the trade gap further this year. U.S. petroleum exports rose to an all-time high in 2013 and the stronger production also lowered America’s dependence on foreign oil, cutting petroleum imports by 10.9 percent.

America’s trade gap with China is still the largest with any country which is keeping up pressure on the Obama administration to take a tougher stand on what critics see as unfair trade practices by China.

Critics say Beijing is manipulating its currency to keep it undervalued against the dollar. That makes Chinese goods cheaper in the United States and American products more expensive in China.

The administration last month announced it had won a major victory before the Geneva-based World Trade Organization in a case in which the United States had challenged China’s imposition of penalty tariffs on the sale of $5 billion in U.S. made vehicles in China.

Also in May, the Justice Department charged five Chinese military officers with hacking into U.S. companies’ computer systems to steal trade secrets in a case that was viewed as evidence of the increased commercial strains between the world’s two biggest economies.

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