The U.S. trade deficit likely grew in October because a slowing global economy is cut demand for American-made goods.
Economists forecast the trade deficit widened in October to $42.6 billion, according to a survey by FactSet. The Commerce Department will release the report at 8:30 a.m. EST Tuesday.
A wider trade deficit acts as a drag on growth. It typically means the U.S. is earning less on overseas sales of American-produced goods while spending more on foreign products.
In September, the trade deficit narrowed to a two-year low of $41.5 billion. Exports climbed to an all-time high of $187 billion, while imports rose to $228.5 billion.
The increase in exports helped lift economic growth in the July-September quarter to annual rate 2.7 percent. That more than doubled the 1.3 percent annual growth rate in the April-June quarter. Growth during the summer quarter was also helped by stronger rebuilding of business stockpiles than previously estimated.
Most economists say growth is slowing in the current October-December quarter to below 2 percent. They note that Europe's debt crisis and slower global growth in emerging markets likely dampened demand for U.S. goods overseas. And U.S. companies are probably cutting back on restocking, mostly because of worries about looming tax increases and government spending cuts that will kick in next year without a budget deal before January.
Through September, the U.S. trade deficit was running at an annual rate of $554 billion, slightly below last year's $559.9 billion imbalance.
The U.S. deficit with China is running 6.8 percent ahead of last year's record pace. America's deficit with China last year was the highest imbalance ever recorded with a single country.
The widening trade gap with China has heightened trade tensions between the two countries. Many have complained that China's trade practices are unfair. American manufacturers say China has kept the yuan undervalued against the U.S. dollar. A lower valued yuan makes Chinese goods cheaper for U.S. consumers and American products more expensive in China.
The Obama administration has lobbied China to move more quickly to allow the yuan to rise in value. But it has refused to cite China as a currency manipulator. That designation would require negotiations between the two nations and could lead to the United States filing a trade case against China before the World Trade Organization.
The administration issued a report last month saying the Chinese yuan remains "significantly undervalued." But Treasury noted that it has risen in valued by nearly 10 percent against the dollar since June 2010.