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US trade deficit soars in July

September 5, 2018

The US deficit in foreign trade widened in July by the most in three years, as exports of soybeans and civilian aircraft declined and imports hit a record high. Deficits with China and the EU were the highest-ever.

Containerhafen von Los Angeles
Image: picture-alliance/dpa/S. Masterson

According to data released by the US Commerce Department on Wednesday, the US trade gap increased 9.5 percent to $50.1 billion (€43.1 billion)
in July, from a revised $45.7 billion in the prior month.

Exports fell by 1 percent in the month, while imports rose 0.9 percent, creating burgeoning shortfalls with major trading partners, notably China and the European Union.

Read more: US trade with the EU, Germany in numbers

The goods trade deficit with China surged 10 percent to a record $36.8 billion, and an all-time high was also reached with the EU at $17.6 billion — up 50 percent. The shortfall with Canada shot up 57.6 percent, while the gap with Mexico was down 25.3 percent.

The figures are likely to further incense US President Donald Trump, who's characterized the deficit as showing how past administrations' "unfair trade policies" have hurt the economy.

Read more: Angela Merkel accuses US of running trade surplus if trade calculations are updated

China tariffs: Trump country feels the pain

Soybean drop

The Trump administration's "America First" policies have left the United States embroiled in tit-for-tat tariffs with the European Union, Canada and Mexico as well as an escalating trade war with China.

Read more: Trump threatens to exclude Canada from new NAFTA deal

Earlier this year, Washington imposed steep tariffs on steel and aluminum from key trading partners, as well as punitive duties on $50 billion in annual imports from China, with the possibility that another $200 billion will be targeted as soon as this week.

Read more: No breakthrough in China-US trade talks

In July, exports dropped sharply because US goods were facing retaliatory tariffs in many countries. Most notably, there was a 16 percent drop in soybean exports. The decrease followed a surge in April and May as farmers front-loaded soybean exports to China before Beijing's counter tariffs came into effect.

Similarly, the surge in July imports was the result of the trade spat with China, said Tim Mahedy, a Bloomberg researcher.

"The July data include the first mention of additional tariffs on Chinese goods, which should have pulled forward imports as domestic producers sought to get ahead of rising costs," he said, adding that the full impact of the tariffs would, however, not materialize until later this year.

Drag on US growth

The widening trade deficit is expected to drag on third-quarter growth in the US, after a narrower gap helped boost the pace of expansion in the prior period to the fastest since 2014.

Trade contributed 1.17 percentage points to the US economy's 4.2 percent annualized growth in the second quarter, which was almost double the 2.2-percent rate notched in the January-March period.

While other indicators suggest gross domestic product is on track for solid gains in the second half, some economists think that the latest figures show how Donald Trump's tariffs may start to weigh on the economy.

"If we see tariffs and retaliatory tariffs, it will disrupt the flows of goods and services — and you've seen some of that," Stephen Stanley, chief economist at Amherst Pierpont Securities, told the news agency Reuters.

At the same time, rising imports could also be a sign that the US economy was "straining" to meet domestic demand he added. "Domestic production can't handle all the demand, so pulling in goods and services from abroad is a release valve to satisfy very strong demand," Stanley noted.

US economic numbers are good, but are they sustainable?

uhe/jw (Reuters, AFP, dpa)