Trade deficit rises to five-month high on declining exports

Washington

The US trade deficit increased to a five-month high in July as exports of soyabeans and civilian aircraft declined and imports hit a record high, suggesting that trade could be a drag on economic growth in the third quarter.

The Commerce Department said on Wednesday the trade gap jumped 9.5 per cent to US$50.1 billion, widening for a second straight month. Data for June was revised to show the trade deficit rising to US$45.7 billion, instead of the previously reported US$46.3 billion.

The politically sensitive goods trade deficit with China surged 10 per cent to a record US$36.8 billion.

Economists polled by Reuters had forecast the overall trade deficit swelling to US$50.3 billion in July. The trade gap continues to widen despite the Trump administration's "America First" policies, which have left the United States embroiled in tit-for-tat tariffs with the European Union (EU), Canada and Mexico as well as an escalating trade war with China.

President Donald Trump has defended the duties on steel, aluminium imports and a range of Chinese goods as necessary to protect American industries from what he says is unfair foreign competition.

The administration says eliminating the trade deficit will put the economy on a sustainable path of faster growth, an argument that has been dismissed by economists as flawed given constraints such as low productivity and slow population growth.

The US and China have slapped retaliatory tariffs on a combined US$100 billion of products since early July, with more in the pipeline, posing risks to both domestic and global economic growth.

The trade gap narrowed in April and May as farmers front-loaded soyabean exports to China before Beijing's retaliatory tariffs came into effect in early July.

When adjusted for inflation, the trade gap increased to a five-month high of US$82.5 billion in July from US$79.3 billion in June. July's so-called real trade deficit is above the second-quarter average of US$77.5 billion. If that trend continues in August and September, trade could subtract from Q3 gross domestic growth.

Trade contributed 1.17 percentage points to the economy's 4.2 per cent annualised growth pace in Q2.

In July, the trade gap with Mexico narrowed 25.3 per cent to US$5.5 billion while the shortfall with Canada shot up 57.6 per cent to US$3.1 billion. The trade deficit with the EU soared 50 per cent to a record high of US$17.6 billion.

In July, exports of goods and services fell 1.0 per cent to US$211.1 billion. Soyabean exports dropped US$0.7 billion and shipments of civilian aircraft decreased US$1.6 billion. Petroleum exports, however, were the highest on record.

Imports of goods and services increased 0.9 per cent to a record US$261.2 billion in July. They were boosted by imports of computers and computer accessories. The import bill was also inflated by petroleum imports, which were the highest since December 2014. The surge reflected higher oil prices.

The price of imported crude oil averaged US$64.63 per barrel in July, up from US$62.42 in June.

There were also increases in imports of automobiles and parts as well as other goods. Pharmaceutical preparations imports, however, fell US$1.3 billion. REUTERS