"Cliff Drop in Imports": US Trade Deficit Hits 14-Year Low in October, GDP Forecast Soars to 5.4% Under Tariff Effects.

The unexpected sharp narrowing of the US trade deficit in October, reaching its lowest level since 2009, was mainly due to a sharp decline in imports, especially of pharmaceutical products. Data released by the US Department of Commerce on Thursday showed that the trade deficit in goods and services in October shrank by 39% from the previous month, dropping to $29.4 billion. This figure was lower than the expectations of all economists surveyed. The report was delayed by over a month due to the earlier government shutdown. Total imports in October decreased by 3.2%, reflecting a decline in the import volume of pharmaceuticals and non-monetary gold. Among them, the import of pharmaceutical preparations fell to the lowest point since July 2022. Meanwhile, total exports of goods and services from the US increased by 2.6%. The above data is not adjusted for inflation. Behind the sharp decrease in imports is a significant "tariff avoidance" effect. In September, many companies stockpiled goods in anticipation of President Trump imposing a 100% tariff on imported pharmaceuticals starting on October 1, even though the tariff was ultimately delayed. Many companies avoided this tariff by reaching agreements with the government to lower drug prices. This year, due to the implementation of US tariff policies, monthly trade data has fluctuated significantly. Especially in recent months, in response to Trump's unpredictable tariff statements, the trade volume of non-monetary gold and pharmaceutical preparations has surged and then sharply declined. In addition to gold, imports of other industrial supplies and materials such as oil and metals have also declined. However, imports of computers and accessories have increased. Bradley Sanders, an economist at Capital Economics in North America, stated in a report that this "indicates strong signs of growth in other sectors of the economy amidst the artificial intelligence construction boom". Government data also showed that the US labor productivity growth rate in the third quarter accelerated to the fastest pace in two years. With increased investment from companies in artificial intelligence, this momentum is expected to further strengthen. The drastic fluctuations in trade have also affected the government's calculation of economic activity - the Gross Domestic Product (GDP). Following the latest trade report, the GDPNow model from the Atlanta Fed predicts that net exports will contribute nearly 2 percentage points to economic growth in the fourth quarter, with GDP growth estimates for this quarter already raised to 5.4%. It should be noted that unless used for industrial purposes such as jewelry manufacturing, gold trade is not included in the government's GDP calculations. Adjusted for inflation (which affects actual GDP calculations), the merchandise trade deficit in October narrowed to $63 billion, the smallest since February 2020. Economist Troy Duri commented, "The volatility component added noise to the October report, especially the overall trade balance data. After removing the noise, the report shows that despite the government shutdown, trade likely boosted US economic growth in the early fourth quarter." Looking at the regional trade patterns, the US saw a significant narrowing of the trade deficit with Ireland. Due to Ireland's favorable tax environment, many large US pharmaceutical companies, including Gilead and Pfizer, have outsourced most of their production to that country. Meanwhile, the trade deficit with Mexico and China widened, while the deficit with Canada narrowed. The deficit with Taiwan also expanded, which may reflect the increase in imports of computers and accessories. Data released by Statistics Canada on Thursday showed that due to a surge in imports of computers and electronic products, surpassing the spike in non-US gold exports, Canada's merchandise trade balance once again turned into a deficit. The report also showed that Canada's share of exports to the US had fallen to 67.3%. This is the lowest level since 1997, except during the pandemic.