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US trade deficit widens as exports sag, imports from China surge
[WASHINGTON] US exports took a hit from an ailing global economy in August and imports from China surged, fuelling the largest expansion of America's trade deficit in five months.
The data released on Tuesday by the Commerce Department illustrates the US economy's vulnerabilities to a strong dollar and weak demand in foreign markets, which could impose further caution on the Federal Reserve's plans to hike interest rates.
The trade deficit swelled by 15.6 per cent to US$48.3 billion in August. The scope of the increase was accentuated by the unusually narrow trade deficit registered in July.
But the size of the gap stands well above the average levels seen in recent years. This puts the onus on US consumers to deliver stronger economic growth because the rest of the world will probably be a drag.
Overall exports fell 2 per cent to their lowest level since October 2012. Exports to Mexico fell by US$1.5 billion in August and the European Union bought US$500 million less from America than it did in July.
The declines are partly due to expectations of higher interest rates in the United States that have pushed the value of the dollar higher, reflecting the strength of America's economy relative to its trading partners. A stronger dollar makes US goods less competitive abroad.
But weaker demand abroad is also playing a role, and US Treasury Secretary Jack Lew will ask policymakers from other countries gathering in Lima, Peru this week to stimulate their economies to kick-start global growth.
A 3 per cent increase in imports from China also factored into the widening of the trade deficit. China's yuan currency has devalued sharply in recent months amid concerns of a possible crash in the Chinese economy, which is the second largest in the world after America's.
The widening of the US trade deficit surpassed the US$47.4 billion median forecast for the deficit in a Reuters poll of economists.
This suggests the economy was growing a little more slowly in the third quarter than analysts expected.
Until recently it appeared that the US economy was largely shrugging off weakness abroad. But last week new data showed a sharp slowdown in employment growth in August and September. This has fueled doubts on Wall Street over Fed Chair Janet Yellen's assertion two weeks ago that the economy would be strong enough to warrant an interest rate hike this year.
Trades made in futures markets now imply that investors are betting the Fed will hold off on hikes until at least March.
In August, imports rose 1.2 per cent, even though America bought the least petroleum from abroad since September 2004.
Imports of consumer goods rose by US$4 billion, of which slightly more than half were cell phones and other household goods.