The United States trade deficit reached a record high in January as strong domestic demand continued to push imports higher, especially oil, while exports were dampened by the omicron surge which reduced production and limited travel.
The trade deficit widened 9.4% in January to $89.7 billion, according to data from the Census Bureau released Tuesday. On an inflation-adjusted basis, the deficit also posted a record at $118.07 billion. Trade imports rose 1.2% on the month, while exports dropped 1.7%.
Crude oil imports rose 7.3% in January amid rising prices throughout the month. The U.S. ban on Russian oil imports will most likely ease the oil trade deficit somewhat as it spurs domestic production while slowing down oil imports. But the spike in oil prices since the Russian invasion of Ukraine will cause the deficit to increase on dollar terms.
The current geopolitical conflict and sanctions will have a major impact on international trade. Russia and Ukraine are two of the world’s top exporters of commodities like oil, natural gas and wheat.
The void in global supplies of those commodities will put more pressure on snarled supply chains, which have been hampering businesses in the United States and all over the world.
But at the same time, it will transform the international trade landscape, providing more opportunities for countries that produce the same type of commodities to take up the unfilled market demand.
The takeaway
We expect the trade deficit to moderate significantly in the coming months as domestic demand tempers because of rising rates, rising oil prices and inflation pressure. The service sector, which often runs a surplus, will continue to recover from the pandemic as the world lifts restrictions on travel and tourism.
