US: Trade poised to boost Q2 GDP – Wells Fargo

A narrowing in the trade deficit in April in back-to-back months means good things for Q2 GDP, but this report is not yet capturing the extent of tariffs on steel and aluminum and survey data about trade is signaling a warning, explained analysts at Wells Fargo.

Key Quotes:

“As the second quarter began, the U.S. trade deficit narrowed as exports increased 0.3 percent while imports declined 0.2 percent in April. After having widened for six consecutive months and now having narrowed in back-to-back months, trade is positioned to be additive to GDP in the second quarter, perhaps substantially so.”

“Given the preoccupation that financial markets have had with tariffs and the potential for a broader trade war, might the flattering trade numbers be a salve for worried markets that there is nothing to fear in protectionist trade policies? Not so fast, keep in mind that this data is only through April and the broader extension of tariffs to our NAFTA trading partners and Europe was not effective until June.”

“It is also useful to remember that international trade figures evolve with long lead times and a glacial pace.”

“It is unclear how long the shadow of tariffs will be cast on trade dynamics in coming years.”

“If there is a storm coming, this might be the calm before it. Imports of iron and steel mill products increased $228 million in April alone and have increased more in the first four months of 2018 than they did in the same period of 2017. Meanwhile imports of bauxite and aluminum increased $44 million in the month.”

“U.S. manufacturers still report expansion in both exports and imports, but not to as broad an extent as they were just a few months ago.”