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Ahead of the Bell: US trade gap

March 7, 2014

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

SMALLER DEFICIT: The forecast is that the deficit narrowed slightly to $38.5 billion in January, according to a survey by FactSet.

TRADE IMPACT: In December, the deficit grew 12 percent to $38.7 billion. But that was seen as a bounce back after a sharp drop in the November trade gap.

A smaller trade deficit can boost economic growth if it comes about because exports are rising as U.S. companies sell more abroad and imports are shrinking as Americans buy more domestic and fewer foreign-produced goods.

In the October-December quarter, the economy grew at an annual rate of 2.4 percent and a full percentage point of that growth came from a shrinking trade deficit.

For the whole year, the falling trade deficit contributed a smaller 0.1 percentage point to growth. Many economists are looking for trade to make a modest contribution around that size to growth in 2014. They expect U.S. exports will continue to expand but these gains will be matched by rising imports as a stronger U.S. economy translates into rising demand for foreign-made cars, electronic products and other goods.

One bright spot for trade: America’s increased energy production is expected to continue. A domestic energy boom has boosted exports and reduced America’s dependence on foreign oil. U.S. petroleum exports were up 10.9 percent in 2013 to an all-time high of $137 billion. Imports were down 11 percent to $369.3 billion as domestic production took the place of the need for some imports.

The United States recorded another record trade deficit with China in 2013 and the expectation is that the deficit will rise further in 2014. That has led to increased pressure on the Obama administration and Congress to take a tougher line on what critics see as unfair trade practices that China is using to gain trade advantages.

The chief culprit, the critics say, is China’s manipulation of its currency to keep it undervalued against the U.S. dollar. That makes Chinese goods cheaper in the United States and America products more expensive in China.

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