The U.S. trade deficit narrowed to its lowest level in more than three years. That’s not likely to last.

First, a recap. The gap between the goods and services exports and imports for November was $43.1 billion, down from $46.9 billion in October and the lowest since October 2016. Economists polled by Bloomberg expected a slightly smaller decline, to a deficit of $43.6 billion.

The shrinkage was because exports rose 0.7% while imports fell 1% from a month earlier. More interesting is the three-month annualized rate for non-oil goods imports, which Ian Shepherdson of Pantheon Macroeconomics notes is about negative 20%.

That’s too big a drop to be just noise, he says, and domestic demand is not nearly weak enough to spark such a steep decline. That suggests most of the drop is tariff-related, as U.S. importers moved forward purchases after the Trump administration announced on Aug. 1 tariffs on some $120 billion in Chinese consumer goods that took effect Sept. 1.

“This can’t last,” Shepherdson says. He expects a rebound to start in February after the tariff rate is cut in half to 7.5%, as part of the phase-one trade deal with China.


For now, the sharp drop in imports will be supportive for gross domestic product. But investors shouldn’t expect a big lift in fourth-quarter GDP, which will be reported by the Bureau of Economic Analysis on Jan. 30.

Shepherdson expects a corresponding fall in business inventories, which in terms of GDP math means the positive contribution from falling imports would be offset by rising inventories. “Demand has to be met from somewhere,” he says, referring to domestic stockpiles that bulked up in advance of tariffs.

The other side of the trade balance—exports—also suggests the recent improvement in the trade deficit will be fleeting. While exports improved in November, the trend is still disappointing. That’s true even when you back out the Boeing effect. Starting this month, Boeing (ticker: BA) is halting production of its 737 MAX jet, which has been grounded since last year after two fatal accidents. The suspension of production will ripple through the aerospace industry, affecting parts suppliers as well as airlines.

Excluding oil and aircraft, exports of goods fell at a 4.7% annualized rate in the three months to November, Shepherdson says, compared to the previous three months. This squares with the Institute of Supply Management’s export orders index, which points to continued declines in the near term.


Write to Lisa Beilfuss at lisa.beilfuss@barrons.com